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

Monday 19th August 2019

Property is increasingly being seen as an asset that’s vital for funding retirement. It’s no surprise, after all, our homes are often one of the largest assets we have, but what are your options and the drawbacks of doing this?

The value of property has grown enormously over the last few decades. If you’re approaching retirement now, you’ve likely benefited from this at some point. According to figures from Nationwide, the average home cost £59,534 at the beginning of 1989. Over a 30-year period, it increased to £212,694. As a result, property has become an integral asset to consider when planning for retirement or thinking about how you’ll pass your estate on to loved ones.

Property and retirement: A growing trend

Some retirees are already exploring how they can use property wealth to enhance their lifestyle and supplement other financial provisions. Research suggests it’s a trend that’s set to continue. According to analysis by Canada Life younger generations are three times more likely to plan to use property wealth to fund retirement:

  • Almost one in ten (9%) people aged between 16 and 54 expect the wealth stored in their homes to be their main source of income in retirement
  • This compared to just 3% of those aged over 55

Alice Watson, Head of Marketing and Communications at Canada Life Home Finance, said: “It is good the younger generation recognises that they can unlock wealth from their property in retirement. This openness is likely driven by the reality that many under 50s will receive less generous pensions under the Defined Contribution scheme, compared to the majority of the older generation on the Defined Benefit plan.

“Notably, the research also illustrates the evolving profile of retirement income, and lends further weight to the argument that Equity Release is moving into mainstream financial planning.”

The findings suggest the majority of over 55s are confident in their financial security. Half believe their State or Workplace Pension will provide sufficient income, whilst one in five are relying on savings. However, with 21% underestimating how long they’ll live for, more could be reliant on property wealth than expected in the future.

What are your options?

With a significant portion of your wealth likely locked in property, it’s natural to wonder what you can do to access it should you need to.

One of the most obvious answers here is to downsize. Selling your home to purchase a cheaper property to spend retirement in can free up some of the investment you’ve made in property. This used to be the traditional route retirees went down. But what if you can’t or simply don’t want to move? Or what if downsizing wouldn’t release as much capital as you need?

Equity Release is an option that more retirees are choosing. There are several different types of Equity Release products, but they typically allow you to take either a lump sum or several smaller sums though a loan secured against your property which you pay interest on. This money is then repaid when you die or move into long-term care, as a result, you don’t usually make payments to reduce the loan during your lifetime, though some products allow you to pay off the interest.

Equity Release can seem like a fantastic way to fund retirement, but there are some crucial things to consider; it isn’t the right option for everyone.

  1. As you don’t usually pay the interest, the amount owed can rise rapidly
  2. Accessing the equity may mean you’re liable for more tax and affect means-tested benefits
  3. You may not be able to move in the future or face a high cost for doing so
  4. Equity Release will reduce the inheritance you leave behind for loved ones
  5. You will not be able to take out other loans that use property as security

Before you look at Equity Release products it’s important that you explore the alternatives to ensure it’s the right route for you. There may be different options that are better suited to your circumstances and goals.

Building a retirement income that suits you

Whilst property wealth is set to play a growing role in funding retirement, it’s important that other sources aren’t neglected. Retirement income is typically made up of multiple sources and may include:

  • State Pension
  • Workplace and/or Personal Pensions
  • Investments
  • Savings
  • Property

Choosing property over contributing to a pension can be tempting if retirement still seems far away, especially when you factor in property growth over the last 30 years. However, once you consider tax relief, employer contributions and investment returns, as well as tax efficiency, pensions should still play an important role in holistic retirement planning.

If you’re starting to think about retirement, whether the milestone is close or you want to understand how your current contributions will add up, we’re here to help. We’ll work with you to help you understand the different income streams that could provide a comfortable, fulfilling retirement that matches your aspirations.

When you’re investing your money through a fund, there are two main strategies: passive and active. The debate around which is the most effective way to invest your money has been raging for years. So, which should you opt for?

As with all investment decisions, it will depend on your goals and personal attitude to investing. However, it’s important to understand the difference between the two options when you’re making investment decisions. Both terms refer to how an investment fund is managed. There are more active funds available to choose from, but passive alternatives have been increasing in the last few years.

Actively managed investment funds

Actively managed funds are led by either a professional fund manager or investment research team. They actively make investment decisions on your behalf, such as when to buy into a specific company or sell certain types of assets. Those running the fund will conduct extensive research to inform their decision-making.

Different funds will have varying investment principles and focus, which you should read about before investing in an actively managed fund. However, they all aim to deliver higher returns than the market. Of course, this can’t be guaranteed, and the returns delivered will depend on those running it to make the right call.

Passive investment funds

Passive management of a fund, on the other hand, simply tracks the market. Rather than a team of people making decisions, a computer essentially runs a passive investment fund. The fund will hold all or a significant portion of assets of a particular market. As a result, the returns delivered should reflect how the overall market has performed.

Comparing the two options

When deciding between the two options, there are a few key comparisons to make that can help you make the right choice.

  • Fees: First up, what fees are you likely to pay for a passively or actively managed fund? As an active fund requires people to carry out a lot of hefty research, they naturally cost more to run. As a result, expect actively managed fund options to cost you more in term of fees. In some cases, this may be worthwhile, but it’s something you should factor into target returns.
  • Potential returns: What is your target return from your investment? As actively managed funds aim to beat the market, there is the potential to make a greater profit. However, relatively few managers can consistently beat the market. So, if this is what attracts you to an active investment strategy, it’s important to do your research. Whether you choose passive or active funds, returns can’t be guaranteed.
  • Historic performance: Whilst historic performance isn’t a reliable indicator for future performance, it can be a useful metric when comparing different options. Looking at historic performance can help you see if the investment strategies align with your personal outlook. For example, would you prefer relatively stable, but lower returns over potentially higher returns with increased volatility?
  • Responsiveness: Investment markets are affected by a huge range of issues, from geopolitical negotiations to consumer demand. A passive portfolio doesn’t react to the news to change how you’re invested. In contrast, an actively managed portfolio aims to do so. This hopefully allows the team running it to seek opportunities and avoid risk, though this relies on them making the right decision.
  • Area of interest: Are you thinking of investing in a particular industry? This is an area where expert insight can add value. However, for most investors spreading investments across multiple sectors, geographic markets and risk is an approach that suits their goals and financial position when looking at an investment portfolio as a whole.

Which option is right for you?

There’s no right or wrong answer when asking which is better: passive or active investing? It comes down to your own financial situation, goals and attitude. Much like the rest of the investing decisions you make, it’s one that should consider your wider financial situation too.

For some, the potential to achieve higher returns will mean that the higher fees associated with actively managed funds will be worth it. For others, a passive fund will be more attractive. If you want to review your current investment portfolio or start investing, please contact us.

Please note: The value of your investments 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.

What’s on your bucket list? Whether incredibly exciting experiences, exotic travel destinations or something entirely different features on your list, it’s likely finances will play some role in how achievable they are. Could your savings be used to tick a few of your aspirations off?

You may have been saving with specific goals in mind or simply putting money to one side for the future. However, dipping into savings can be something people find difficult. To have built up a healthy savings fund you’ve likely established good money habits and accessing savings can go against this. However, it may mean you miss out on opportunities to achieve aspirations, even if you’re in a financial position that allows for it.

As a result, it’s important to understand your savings and how dipping into them will affect your plans, giving you the confidence to make decisions.

If you have big plans ahead, from helping younger generations get on to the property ladder to a once in a lifetime trip, there are a few things to consider. Your savings are likely to be spread across multiple products, how do you know where you should take the money from and when should you do it? Among the areas to consider are:

  • Accessibility: When looking at various savings, the first step should be to see how accessible they are. Are any of them fixed term accounts? Or are some of them invested? If you’re planning ahead for a few years’ time, accessibility is less likely to be an issue, but if you want the money soon, it may limit your options. Be sure to check that you won’t lose any of your savings, interest or returns by taking money out. Some accounts may lower interest rates, for example, if you make a withdrawal before a set date.
  • Tax efficiency: Would accessing your savings affect your tax position? There are some instances where taking a lump sum from savings may mean an unexpected tax bill. Let’s say you decide to use some of your pension after the age of 55 savings to kick-start retirement; the first 25% can usually be withdrawn tax-free, but, take out more than this and it may be considered income for tax purposes. If you sell stocks and shares, you may be liable for Capital Gains Tax too. Looking at the tax efficiency of different options allows you to maximise your savings.
  • Allowances: As you’ve been saving for the future, you may have made use of allowances. Your ISA (Individual Savings Account) allowance means you can save £20,000 each tax-year tax-efficiently. If you take money out of an ISA, you may not be able to return it without using up the current year’s allowance depending on the provider, which may limit you. In some cases, allowances will have little impact on your decisions, but in others they are important. This will depend on your personal circumstances and plans.
  • Potential for future growth: Which of your saving pots has the biggest potential for growth in the future? Accessing savings that are invested over a cash account with a low-interest rate may not be in your best interests financially when you look at the long term, for example.

The impact on your long-term financial security

Of course, it’s important to consider what impact using savings now will have on your long-term financial security. If you’re worried about how taking money out of savings could affect future plans, this is an area financial planning can help with.

Often people find they’re in a better financial position to start accessing their savings than they first think, but it’s normal to have some concerns. Cashflow modelling can help you visualise the short, medium and long-term impact of using your savings. It can also model how taking savings out of different saving products will have an effect, allowing you to choose the right option for you.

It’s also an opportunity to weigh up how your financial security will be affected. Would using a portion of savings mean your emergency fund is depleted, for example? Understanding the long-term implications gives you the tools needed to decide how much and when you should make a withdrawal from your savings. Taking the time to consider the long-term impact of your decision means you can proceed with confidence and really enjoy spending the money on turning aspirations into a reality.

If you’re thinking of accessing some of your hard-earned savings to work through your bucket list and have concerns, please contact us. Our goal is to work with you to help you get the most out of your money by creating a financial plan that reflects aspirations and boosts confidence.

Planning your retirement can be a challenge. There are multiple areas to think about and you may not have a clear idea of what you want it to look like. However, whilst putting off planning until the retirement date arrives might seem attractive, it can mean missing out. Taking a proactive approach in the run-up to retirement can provide focus.

If you’re at a loss about where to start with retirement planning, bringing the spotlight back to you should be your first step. There’s no single type of retirement that suits everyone. A key part of your planning should be about understanding what your ideal retirement looks like and building a fulfilling lifestyle once you give up work. Over the last few decades, work has probably played a significant role in your life and it can be daunting to step away from that and embrace the freedom retirement offers.

The five questions below can help you start to think about the type of retirement that you’ll want to look forward to.

1. When do you want to retire?

The first thing to set out is when you want to retire. For some, retiring as soon as possible is the dream, but others will want to work well past the traditional retirement age. You don’t have to set a date in stone if you’re unsure. However, having a rough idea of when you’d like to embark on retirement means you can make informed decisions. As well as your personal outlook, your job and the flexibility it affords will play a role too. If you were to carry on working for another ten years, would adjustments need to be made, for example?

Remember, the State Pension age is now gradually rising for both men and women. If you’ll rely on the State Pension to supplement other sources of income, be sure to check when you can start claiming it.

2. Would you like to take a phased approach to retirement?

Does the thought of giving up work completely worry you? You’re not alone, more retirees are choosing a phased approach. This may mean cutting down your hours at an existing position or looking for a new job that will provide you with more flexibility. Phased retirement may be the right choice for you if you don’t feel quite ready to jump into retirement. Work offers numerous benefits, such as social life and keeping your mind active, that you may still want to hold on to whilst enjoying some freedom. Phased retirement can also enhance your income and help preserve pensions and other provisions you may have made.

3. Do you plan to make any one-off purchases to kick-start retirement?

When we first start to think about retiring, it’s often those big one-off plans that our attention is drawn to. Do you hope to begin retirement with a once in a lifetime holiday? Or, perhaps you’ve been thinking about renovating your home once you have more time on your hands? This is a time to celebrate the next chapter of your life and you may want to mark the occasion with a grand gesture, now is the perfect time to think about what you’d like.

4. How will you fill your time day-to-day?

Whilst the above point is often the focus, the day-to-day is just as important too. What’s important to your life now or driving your decision to retire? It may be a desire to travel the world, spend more time with loved ones or focus on a hobby that you’ve not been able to dedicate as much time as you’d like. Without work, how will you spend your time? Whilst you might simply plan to spend more time at the golf range or relaxing, without plans it can become dull quickly. Thinking of several hobbies, aspirations and passions you can pursue in retirement can create a lifestyle that’s enjoyable and fulfilling.

5. Do you want to move or stay where you are?

Finally, it’s time to think about where you’d like to spend retirement. You may be comfortable in your own home. If this is the case now is an excellent time to think about whether any adaptions would be needed to ensure it’s suitable throughout retirement. Alternatively, you may have plans to downsize, move closer to family or even take the plunge to live abroad. Whatever your plans, you should consider how they’ll affect the lifestyle that you want to achieve.

Taking a look at your retirement finances

Setting out the retirement lifestyle you want is important. However, so is ensuring it’s realistic and in line with your financial provisions. Taking the time to review your retirement finances can help you see where adjustments may need to be made or where you can think even bigger.

When people start looking at all the sources of income open to them in retirement, such as pensions and savings, many find they’re in a better position than they first suspected. As a result, they may choose to expand plans, help family or simply proceed with confidence about their financial situation. Of course, some planning for retirement may find there’s a shortfall. If this is the case, don’t panic. Realising there’s a gap in your finances before reaching retirement means you’re in a position to make changes where necessary or look at alternative sources of income.

Calculating income in retirement and understanding a sustainable level to access assets can be complex. This is an area we’re happy to help you with. We work with a range of clients planning for retirement to help them understand what they want to achieve and how assets will allow them to do so.

Please note: 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.

2018 proved a difficult year for investors. Volatility meant many saw the value of their investments fluctuate and it led to the majority tinkering with their long-term financial plans amid concerns. However, it is a step that may not be right for them and could mean lower returns over the long term.

During a year that was characterised by global economic concerns and uncertainty, from Brexit to a trade war between the US and China, investment markets were volatile. In the last quarter of 2018 alone the MSCI World Index fell by 13.9%, the 11th worst quarterly fall since 1970. As a result, it is not surprising that some investors felt they had to respond by changing plans they had initially set out.

Responding to market volatility

Whilst investing should form part of a long-term financial plan, research from Schroders indicates that many investors decided to take action after experiencing volatility in the short term. Just 18% of investors stuck to their plans in the last three months of 2018. Seven in ten investors said they made some changes to their portfolio risk profile:

  • 35% took more risk
  • 56% moved into lower-risk investments
  • 20% moved money into cash

Despite many making changes to their plans, more than half of investors said they have not achieved what they wanted with their investments over the past five years. Interestingly, many attribute their own action or inaction as the main cause of this failure. The findings indicate that investors may recognise that deviating from long-term plans can have a negative impact, as well as judging decisions with the benefit of hindsight.

Claire Walsh, Schroders Personal Finance Director, said: “No-one likes to lose money so it is not surprising that when markets go down investors feel nervous. Research has repeatedly shown that investors feel the pain of loss more strongly than the pleasure of gains. That can affect decision making.

“As our study shows even just three months of rocky markets led many investors to make changes to what should have been long-term investment plans. That could potentially lead them into making classic investment mistakes. These include selling at the bottom when things feel bad or moving their money into cash in an attempt to protect their wealth, but then leaving it there too long where it can be eaten away by inflation over time.”

Why should investors have held their nerve?

It is easy to see why investors might be tempted to tinker with financial plans after seeking investment values fall. However, for many, it is likely to have been the wrong decision.

Investing should be done with a long-term outlook, generally a minimum of five years. Volatility is a normal part of investing and any financial plan should have considered how the ups and downs of the market would affect your goals. A long-term outlook allows for dips and peaks to smooth out. Changing your position whilst experiencing volatility could mean selling at low points and missing out on a potential recovery in the future.

Of course, there are times when it is appropriate to change your investment position. For example, a change in your income or investment goals may mean that your risk profile has changed. However, changes should not be made in response to normal investment volatility alone, they should consider the bigger picture.

Creating a financial plan that considers volatility

When you create a financial plan, it is impossible to guarantee the returns investments will deliver. However, your decisions should consider potential volatility and what is appropriate for you. With the right approach, you should feel confident in the plans you have set and hold your nerve next time investment values fall.

Among the areas to consider when building a financial plan with a risk profile and level of volatility that suits you are:

  • What are you investing for?
  • How long do you intend to remain invested?
  • What is the risk profile of other investments or assets that you hold?
  • How likely is it that your situation will change in the short or medium-term?
  • What is your overall attitude to risk?

If you are worried about investment volatility, please get in touch. Our goal is to work with you to create a long-term financial plan that you have confidence in, even when markets are experiencing a downturn.

Please note: The value of investments 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.

Inheritance Tax (IHT) is one of the most unpopular types of tax in the UK and often referred to as a ‘death tax’. With the Office of Tax Simplification (OTS) reviewing it and recommending changes, it’s the perfect opportunity to look at why and what the current rules mean for you.

IHT is paid on around one in 20 estates in the UK. Whilst that’s relatively few, the bill can be significant and it’s one that your estate could be liable for without realising it, particularly when you factor in property growth. During the 2018/19 tax year, IHT receipts reached £5.2 billion following a 3.1% increase on the previous year. As a result, understanding whether your estate may need to pay IHT and what the likely bill will be is crucial for effective estate planning.

However, the rules around IHT can be complicated and this is the key reason that the review is happening.

What is Inheritance Tax?

Let’s start at the beginning: IHT is essentially a tax applied to your estate when you pass away if its total value exceeds certain thresholds. The standard IHT rate is 40% on the portion of your estate that is greater than these thresholds.

Your estate covers all your assets, such as saving accounts, investments, property and physical items. As a result, you may be underestimating how much your estate is worth, especially when you factor in growth and inflation. This can make understanding whether IHT may be liable on your estate and the size of the eventual bills difficult.

Usually, IHT has to be paid on your estate within six months of passing away. When you die, the executor values your estate and reports this to HM Revenue & Customs (HMRC), the tax should then be paid. A receipt for IHT is then issued and probate can be granted, allowing assets to be distributed according to your will or intestacy rules if you die without a will in place. Where the value of assets fluctuate, for instance, stocks and shares, the value is taken as the point of death.

Will your estate need to pay Inheritance Tax?

When calculating the potential IHT that your estate may face, there are two key thresholds to keep in mind:

  1. Nil-Rate Band: You can pass up to £325,000 on to loved ones without your estate needing to pay any IHT. If the total value of your estate is above this threshold, IHT may be due.
  2. Residence Nil-Rate Band: If you’re leaving your main home to children or grandchildren the Residence Nil-Rate Band can also be used. This can add up to £150,000 (rising to £175,000 in 2020/21) to the amount you can pass on as inheritance tax-free.

The Nil-Rate Bands can be used together. In effect, this means that an individual can leave up to £500,000 to beneficiaries free from IHT from 2020/21. If you’re married or in a civil partnership, it’s also possible to pass on unused allowances to your partner. So, a couple could effectively pass on an estate valued at £1 million if both Nil-Rate Bands and Residence Nil-Rate Bands are maximised.

It’s important to note that it’s often possible to reduce an IHT bill and, in some cases, it may be avoidable. However, this usually relies on you taking a proactive approach to estate planning. Among the steps that can reduce IHT are:

  • Making the most of the gifting allowance to reduce the size of your estate
  • Using a trust to take some of your assets outside of your estate
  • Taking out life insurance to cover the costs of IHT
  • Leaving more than 10% of your estate to charity to reduce the IHT rate from 40% to 36%

The best way to manage potential IHT liabilities will depend on your personal situation and what you want to achieve. If you have concerns about IHT, please contact us.

The OTS review

So, what has the OTS recommended as part of its review? Among the propositions were:

  • Scrapping the current gifting rules in favour of a single, higher personal gifting allowance
  • Reducing the current seven-year rule, the time period that must pass for some gifts to be considered entirely outside of your estate, to five years
  • Removing the sliding scale of IHT rate that is applied when a gift has been given within seven years of death in favour of a simpler rate
  • Removing IHT on death-benefit payments from life insurance companies, removing the need for them to be held in trust to avoid IHT

Whilst none of these recommendations have yet been implemented, the review does highlight how regulation and legislation can change. As a result, it’s important to regularly review your own financial and estate plan to reflect where developments have occurred.

If you have any questions relating to IHT, estate planning or your overall financial plan, please get in touch.

Please note: The Financial Conduct Authority does not regulate tax or estate planning.

We spend much of our working lives contributing to a pension to create an income that affords a comfortable retirement with a few luxuries. But a survey suggests that many saving into a pension are worried about running out.

A poll conducted by FT Adviser asked financial advisers what their clients planning for retirement two decades away were most concerned about. Some 72% said living longer than pension savings would last came out top. Two other responses also highlighted worries about finances during retirement:

  • 10% said clients had concerns about having enough to fund social care if it were needed
  • 8% responded that their clients’ biggest fear was having enough to spend on luxuries when they retired, indicating some are worried about the quality of life they’ll be able to afford in retirement

Why is outliving a pension a growing concern?

Whilst living longer than your pension will last has been a concern in the past, it’s one that’s affecting more people now. Of course, planning retirement is personal but there are four key reasons why it’s a growing trend:

  1. Longevity: Life expectancy has risen significantly in recent generations and that means pensions need to last even longer. In the past, a pension had to last perhaps 20 years. Today, it’s not uncommon for retirees to live 30 or even 40 years after they give up work. Longer lives are clearly positive, but it does present more challenges when it comes to managing retirement finances.
  2. Potential care: Coupled with rising longevity is the fact that more of us will now need some form of social care. The majority of those requiring care, whether home care services or residential care, will need to pay for at least a portion of their own care costs. The cost of care can be significant and should be factored into retirement plans, but knowing what should be set aside is difficult.
  3. Flexible pensions: Prior to 2015, most people either had a Defined Benefit pension or purchased an Annuity, providing them with a guaranteed income for life. However, Pension Freedoms mean this has changed. More people are choosing to access pensions flexibly, changing the amount they withdraw to suit them. This does have benefits, but also means individuals now need to take more responsibility for how they use a pension.
  4. Uncertainty: The above three points all contribute to a feeling of uncertainty. It means that some saving for retirement now may be unsure if they’re on the right track and the lifestyle their efforts will sustainably afford them once they reach retirement. Understanding how much you need to save to achieve the retirement you’re looking forward to is important for easing concerns.

Alternatives to your pension

With so many people worried about outliving their pension, it’s important to look at what other assets you can use should this happen. It’s a step that can give you greater confidence and lead to a financial plan that includes arrangements should something unexpected happen, providing you with a financial safety net.

  • State Pension: First, over your years working, you’ve probably built up some State Pension entitlement. At the moment, you need 35 qualifying years to receive the full State Pension of £168.60 per week (£8,767.20 annually). If you have fewer qualifying years, you’ll receive a portion of the full State Pension. You can check how much State Pension you can expect to receive here.
  • Property: For many retirees, property is one of the largest assets they own. However, it’s often overlooked as part of retirement planning. You may want to leave your home as an inheritance to family, but, if needed, it can be used to provide an income in retirement. Products that release equity locked in property aren’t suitable for everyone, but may be worth considering if pension savings are dwindling.
  • Investments and savings: Over your life, you may have also built up savings and an investment portfolio, which can be used effectively to provide an income during retirement. At times, people can be reluctant to use these after a lifelong habit of saving. However, it can offer you security and comfort.

Entering retirement with financial confidence

To fully enjoy retirement, confidence in your financial position is important. This is where financial planning can add value. Financial planning can help assess how all your assets can be used effectively in retirement and how to use them to ensure sustainability.

It’s a process that can also help you answer those ‘what if’ questions. If you’re worried about how the cost of care would deplete assets or what would happen if you lived five years longer than expected, financial planning can give you an idea of the short, medium and long-term impact. Cashflow planning can, for instance, allow you to see a visual representation of how your wealth may change depending on the decisions you make and factors that are outside of your control.

If you’re planning for retirement and are concerned about outliving your pension, please get in touch. We’ll work with you to understand what your current financial position is and where adjustments can be made to get the most out of your money.

Please note: 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.

No one wants to think about becoming seriously ill. However, it’s an approach that could be leaving millions of people open to financial insecurity if something did happen. Research has revealed that Brits are often in ‘illness denial’ believing something won’t happen to them, even if the odds aren’t in their favour.

Focussing on the likelihood of being affected by a serious medical condition, research from AIG Life discovered many Brits are in a state of denial.

  • Just 22% of people questioned expected to be affected by cancer in their lifetime, however around half of people born after 1960 are expected to battle the disease
  • Heart disease is likely to cause more than a quarter of all deaths, yet only 17% think they will be affected
  • Only 7% thought they would suffer from a stroke, the leading cause of death and disability in the UK

It’s normal to think that serious illness won’t happen to you, but the reality is often different. Taking an optimistic view of the world and your future lifestyle certainly shouldn’t be seen as a bad thing. However, you should take steps to ensure security should something happen.

Financial security and illness

One of the key areas where a serious illness can have an impact on our lifestyle comes down to finances. After all, it’s likely to affect your ability to work and earn an income. If you were to become too ill to work, would you have the savings to fall back on to cover essentials? The research indicates that, for many people, the answer would be ‘no’.

  • 77% of people said they’d experience financial problems if they developed a serious illness in the next six months
  • Worryingly, a quarter said it would cause significant financial problems
  • As a result, a third would need to turn to family and friends for support

Not having a financial safety net can make an already difficult time incredibly challenging. At a time when you should be focussing on recovering, stress and financial concerns can have an effect. Taking steps to provide financial support should something happen not only means you can feel more relaxed should you become seriously ill but it will give you peace of mind now.

Debbie Bolton, Head of Underwriting and Claims Strategy at AIF Life, said: “Our extended lives mean we may live in poor health for longer and sometimes with more than one serious illness. Taking a realistic and practical approach to the risk of illness and the need for financial protection will help us all to plan for the future.”

Three steps to take to improve your financial security

You can’t predict what will happen but there are things you can do to ease the burden should something occur. These three steps can help you understand and safeguard your financial security should you become too ill to work.

1. Check your employer’s policy: The first thing to do is check what your employer’s policy is on sick pay. Employer’s don’t have to offer sick pay, but many do as part of a benefits package. Usually, if you benefit from one, they will pay your full salary for a defined period of time if you become too ill to work, however, some pay out a portion of your salary. The length of time and the amount offered varies between employers so it’s important to check what your contract says.

If your employer doesn’t offer sick pay, you may qualify for Statutory Sick Pay (SSP). This is paid for up to 28 weeks and is £94.25 per week. With outgoings often higher than this, it’s wise to look at alternatives if you’d be relying on SSP alone.

2. Build up an emergency fund: If you haven’t already got an emergency fund to fall back on, building one up should be a priority. It can give you a financial safety net when income stops or you face an unexpected outgoing. Adding to an emergency fund can improve your financial resilience and security.

Ideally, an emergency fund should cover your essential outgoings for three to six months. This gives you some time without having to worry about where further income will come from as you recover and get back on your feet. Whilst it might be tempting to lock savings away to access better interest rates, your emergency fund should be easily accessible.

3. Take out suitable cover: Even with an emergency fund in place, you could still face financial difficulty if you’re off work for an extended period of time. This is where taking out a suitable protection product can help. These insurance policies pay out under certain circumstances when you pay a monthly premium. There is a range of different policy types, which one is right for you will depend on your priorities and circumstances.

When looking for cover that will provide financial security should you become ill, there are broadly two options. Income Protection policies will pay out a portion of your usual salary until you can either go back to work or retire. This provides you with certainty and peace of mind. Alternatively, Critical Illness Cover will pay out a lump sum if you’re diagnosed with an illness that the policy covers, this may include cancer, stroke or a heart attack.

Protection and creating a financial buffer you can fall back on when necessary should form part of your wider financial plan. If you’d like to discuss the type and level of cover that would be suitable for your circumstances, please contact us.

Planning how you’ll pass your estate to loved ones can be challenging, both practically and emotionally. But taking some steps to understand how you can efficiently achieve your goals, can make them more likely to become a reality.

From writing a will to discussing potential inheritance with loved ones, estate planning is a task that many put off. However, it should be considered an essential part of your financial plan that’s just as important as putting money into pensions or checking the performance of investments.

There are many benefits of estate planning, among them:

1. Understand the value of your estate better

Financial planning should help you understand the value of your estate and how this might change in the future. Taking a look at what assets you have to leave behind for loved ones and considering how they’d be distributed can help with this. Cashflow modelling can show you how wealth and assets will be depleted over time. This can help give you an understanding of the inheritance that you can leave or where you may want to make lifestyle changes in light of this.

2. Minimise potential Inheritance Tax

Is your estate likely to be liable for Inheritance Tax (IHT)? If the total value of all your assets exceeds £325,000 IHT may be due, reducing the amount loved ones will receive from your estate. However, there are often things you can do to reduce or eliminate an IHT bill. However, this requires a proactive approach and you should take steps to do so as soon as possible. From setting up a trust for some assets to gifting to charity, an effective estate plan can mean leaving more behind for loved ones.

3. Calculate the sustainability of your income

You might have a clear idea of what you’d like to leave behind for family and friends. If so, how does this correlate with the income you’re already taking or plan to take? Estate planning can help you reconcile your income with legacy plans. It’s also an opportunity to assess how sustainable your income is over the long term. If your expenditure remains the same, how much would you leave behind if you lived ten years beyond the average life expectancy, for example?

4. Help loved ones plan for the future

Research from Royal London suggests that almost 6.5 million adults refuse to discuss their will with loved ones. Whilst it can be difficult to talk about your estate plan, it can help loved ones prepare for the future. Letting beneficiaries know how much they can expect to receive through inheritance can improve their personal financial security. Without a discussion, they could make inaccurate assumptions that affect them long term. It’s a step that can give you peace of mind about their future too.

5. Support loved ones now

As you look at what you’re likely to leave behind for loved ones, you may realise you’re in a position to offer financial support now rather than leave an inheritance. As life expectancy rises, some beneficiaries are finding that inheritance is coming too late to help them tick off financial milestones, such as paying off the mortgage. Providing support to children and grandchildren now could have a larger impact than receiving an inheritance. Of course, you need to ensure that offering gifts won’t have a negative impact on your lifestyle in later years and you should consider the IHT implications.

When should you review your estate plan?

You might think once complete an estate plan is finished, but, like any other part of your financial plan, it’s important to keep going back to it. Over time, your aspirations and financial positions will change, which should be reflected in your estate plan. From needing to pay for care costs to welcoming grandchildren, your initial plan may be very different from what you want in five years’ time. As a result, it’s wise to review it regularly alongside other financial plans and make adjustments where necessary.

If you’re thinking about how you’ll pass wealth on to loved ones, please contact us. Our goal is to give you complete confidence in your financial situation now and in the future.

Please note: The Financial Conduct Authority does not regulate estate and Inheritance Tax planning.

When you write a will, you expect your wishes to be upheld, but that’s not always the case. It is possible for those left behind to contest a will if they believe it is invalid or doesn’t make reasonable financial provisions for certain relatives or dependents. As the number of contested wills increases, it’s important to understand why this is and what can be done to minimise the risk of it happening.

In simple terms, a will contest is a formal objection raised against a will. There are several reasons why someone may choose to contest a will, which can broadly be broken down into two categories:

  • The validity of the will: Most will contests focus on the validity of the will and there are reasons why this may be called into question. Among the arguments of contesting a will are lack of valid execution, undue influence, lack of knowledge and approval, and testamentary capacity.
  • Reasonable financial provisions: Certain people can also make a challenge to your will by claiming that it doesn’t make reasonable financial provisions for them. Among the people that can do so are a spouse or civil partner, a child, a former spouse or civil partner, or a person that was maintained by you immediately prior to death. Many factors will be taken into consideration when assessing reasonable financial provisions, including the financial needs of the applicant and the size of your estate.

Figures from HM Courts and Tribunals show that the number of disputes of wills has increased. Analysis conducted by Direct Line indicates that disputes regarding application for probate increased by 6% in 2018. It’s a trend that looks set to continue too. A quarter of Brits, the equivalent of 12 million people, would be prepared to contest a loved one’s will if they were unhappy with it.

Why is the number of will contests rising?

There are many reasons why someone may choose to contest a will. However, the overall trend has been linked to two key factors.

First, property prices have risen enormously over the last couple of decades. As property is often one of the largest assets a person owns, this has led to the value of estates rising significantly. As a result, there’s a greater reason for those left behind to dispute a will they don’t agree with and pay the associated legal fees.

Secondly, a complex family situation can make splitting up an estate far more challenging. Marrying more than once, having children from different relationships and other influences can have an impact on disputes.

Minimising the chances of your will being disputed

With disputes against wills rising, it may be wise to take action to minimise the chances of a dispute occurring in the first place and reduce the likelihood that a dispute would be upheld. Among the steps to consider taking are:

1. Speak to loved ones: Whilst you may not want to discuss the details of your will, it can prevent loved ones from being shocked by your decision. If you think they will be surprised by how your estate is set to be distributed, explaining your decision and reasons behind it can help ensure you’re all on the same page.

2. Make sure your will is properly executed: You have two options when writing a will: DIY or use the services of a solicitor. A solicitor will cost you, but they can offer guidance on ensuring your will is executed properly and reduce the chances of questions around the validity of it being raised. If you choose to go down the DIY route, make sure you fully understand the process and the boxes that need to be ticked.

3. Prove medical competency: A common reason for disputing a will is that the person making it didn’t have the mental capacity to fully understand what they were doing. For instance, if they had been diagnosed with dementia. This can be countered by speaking with your solicitor or doctor about your ability to make decisions and having this in writing.

4. Be aware of undue influence: Another common ground for dispute is that the person faced undue influence when writing the will. This would have to be proved by someone making an application against your will. However, ensuring the solicitor’s notes state you fully understand the decisions you were making and had reasons for doing so can help.

5. Be as precise as possible with the wording: Ensure your will is written as clearly as possible. Ambiguous wording can make it easier for those that want to dispute your will to do so. Have a clear plan in mind about who you want to benefit from your estate and how before proceeding to help with the process.

6. Provide details of exclusions: If you plan to specifically exclude someone from your will who would normally inherit, such as a spouse, civil partner or child, you can provide details as to why. Should they then make a claim against your will, this can give a clearer picture of your decision and why it’s one you reached.

7. Add a letter of wishes: A letter of wishes isn’t legally binding. However, it can be used to state in your own words who you want to benefit from your estate and why. Should a dispute be raised, this can then be used against it. Whilst it may be tempting to write an emotional letter of wishes, it’s best to stick to the facts.

8. Regularly review your will: Over time, your wishes are likely to change as your circumstances do. As a result, so should your will. It’s advisable that you review your will every five years and following big life events, such as getting married, divorce, or as your family grows to ensure it reflects your current situation.

Please note: Estate planning is not regulated by the Financial Conduct Authority.


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