unexpected money

5 Things To Consider When You Come Into Unexpected Money

Everyone has at some point daydreamed about what they’d do if they suddenly came into a large amount of money. But what would you do if it really happened?

Whether it’s enough money to buy a new car or a gold-plated yacht, if you receive an unexpected windfall you should always think carefully before spending it. Take your time to consider your options as you might be feeling overwhelmed.

If you’ve received a large amount of money, it’s important to be mindful of the limits set by the Financial Services Compensation Scheme (FSCS) on how much compensation you will receive if the bank fails.

Temporary higher balances of up to £1 million will be compensated for in the first 12 months per person per bank or building society. But after that, you will only receive a maximum of £85,000 for any lost savings. So, if you do decide to put your new-found money in the bank, it might be worth spreading it out across several banks to ensure that it’s all protected.

A large sum of money has the potential to transform your life if you use it wisely. So, read on for five things to bear in mind if you come into unexpected money.

  1. Make a plan of what your goals are

Although we might daydream about it, most people don’t keep a detailed plan on what they’d do if they came into a large amount of money.

However, it is important to make one before you think about splashing your cash recklessly. Otherwise, it can be all too easy to get overly excited and start frittering it away on things you don’t really need.

Write down everything you might want to buy or do with the money, including giving gifts. This could be anything from going on holiday to helping a loved one to purchase a home. Don’t just think about the things you’d like to do now, but those further away too.

It can be easier to plan when you have all the information in front of you, not just vague ideas. A plan will help you see which goals you can afford now, and which goals you may be able to afford in the future, with careful management of your money. Long-term goals might include retiring early or building a legacy to leave behind for your family.

When making this plan, you may benefit from the advice of a financial adviser. We can help you to organise your finances to help you meet your goals in the short and long term.

  1. Pay off your debts to avoid interest payments

Settling your debts is usually the most sensible thing to do if you come into unexpected money.

By settling debts now, you can save yourself from having to repay interest on the debt later, which compounds over time. This can save you large amounts of money, especially if it is a large debt or one with high interest payments.

It may also be wise to pay off short-term debts, such as overdrafts or credit cards, first since they typically have higher interest rates. After you’ve paid those, you can start thinking about paying off other long-term debts, such as mortgages.

  1. Keep an emergency fund

Nobody can predict the future, so no matter how well you manage your money, it’s always worth keeping a rainy day fund. This can give you peace of mind if disaster should strike.

Although the spending power of cash is eroded by inflation, it can still be important to keep a fund that’s easily accessible just in case. As a general rule, it’s worth setting aside an emergency fund with enough money to cover three to six months of expenses.

With this, you can rest easy knowing that even if the worst should happen, you’ll have some money to fall back on.

  1. Decide whether you want to save or invest

One important decision you will have to make is whether you should save your new-found money or invest it. Your goals should have a strong influence on what you decide.

If you’re averse to risk, putting your money into a savings account may suit you. Unlike investing, your money is safe from losses, assuming you stay within the limits of the FSCS. But it may not increase in value much, if at all, as current interest rates are likely to be below inflation.

Putting your money in a savings account is also useful if you have a short-term goal in mind, such as booking a holiday.

On the other hand, if you have a long-term goal, such as building wealth to pay for a comfortable retirement, it might be worth considering investing your money instead. Investing can help you grow your wealth in the long term, but it does come with risks. You should invest with a minimum time frame of five years in mind.

  1. Seek the help of a financial adviser

If you come into a large amount of money, you should consider speaking to a financial adviser who can help you to use it to achieve your goals.

It might be tempting to think you don’t need one. A study by AKG revealed that 43% of people who had not seen a financial adviser in the last five years believed they already had enough knowledge to make financial decisions for themselves.

However, when you’re dealing with large amounts of money, it can be hard to use it efficiently and understand how it can support long-term goals. Financial planners have experience overcoming the issues that may arise, such as dealing with complicated tax laws, to help you get the most out of your windfall.

A study by YouGov has shown that only 27% of people would consider speaking to a financial adviser after receiving a windfall. If you want to use your money more effectively to reach your goals, you shouldn’t be one of them. Please get in touch to discuss how we can help you realise your goals.

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

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

Final Salary Pension

5 Things To Check Before Cashing In A Final Salary Pension

If you’re fortunate enough to have a Final Salary pension, you have options for creating a retirement income that suits your goals. But, if you’re tempted to transfer out of a scheme, it’s essential you understand what you’d be giving up first.

Figures published in the Telegraph show cash transfer values for retirees leaving a Final Salary pension scheme reached record highs this summer. The estimated cash transfer value of a 64-year-old with a £10,000 a year pension was worth £260,800 in mid-June. It’s easy to see why Final Salary pension holders may want to transfer out of their existing scheme when such large sums are on offer.

However, it’s not in the interest of most people and there are numerous factors to consider before taking the next steps.

What does transferring out of a Final Salary pension mean?

A Final Salary pension, also known as a Defined Benefit pension, provides you with a guaranteed income for life.

When you start paying into a Final Salary pension, the calculation to understand your eventual retirement income is already defined. Usually, this is linked to how long you’re a member of the scheme and your final salary or career average. It is the pension scheme’s responsibility to meet these financial commitments. Investment performance will not affect how much you receive.

In recent years, the number of Final Salary pensions available has fallen as it becomes more expensive for schemes to meet their obligations due to longer life expectancy. This has also led to schemes offering greater sums to pension savers that wish to transfer out, known as a cash transfer value.

If you transfer out of a Final Salary pension, you lose a guaranteed income for life and instead receive a lump sum, which you will need to place in a personal pension, a self-invested personal pension (SIPP) or a pension scheme with another employer.

With a personal pension, your money is invested, and the performance will affect your retirement income. You’re also responsible for how and when you’ll access the savings, including ensuring it’ll last a lifetime.

5 things to think about if you’re considering transferring out

  1. What income will your Final Salary pension provide?

The first step is to understand what income your current pension scheme will provide. You should receive an annual statement with these details or can contact your scheme to find out more. The scheme will also set a retirement date, this is often before traditional State Pension age. Remember this income will be paid for the rest of your life. It is also usually linked to inflation, preserving your spending power throughout retirement.

  1. What additional benefits does your Final Salary scheme provide?

Many Final Salary pensions come with additional benefits, which, depending on your circumstances, can be valuable. For example, your scheme may offer a spouse or dependents’ pension. This would ensure loved ones continue to receive an income even if you pass away. If your family rely on your financial support, this can provide peace of mind. Any additional benefits from a pension will cease if you leave the scheme. As a result, if you transfer out, you will need to consider alternative measures.

  1. What cash transfer value are you being offered?

To be able to understand how transferring out will affect your retirement long term, you need to review the cash transfer value your pension scheme will offer. You can request this from your pension scheme. While this can seem like a significant sum, remember this will need to last for the rest of your life and that inflation will have an impact long term.

  1. How long is your life expectancy?

No one wants to think about passing away, but this is an important question when retirement planning. It’ll help you understand how long the cash transfer value will need to last for and how this compares to the guaranteed income. Keep in mind that we often underestimate how long we live for and there’s a good chance that you’ll exceed the average life expectancy and you need to factor this in.

  1. What investment returns can you expect from a personal pension?

If you transfer from a Final Salary pension, your savings will usually be invested. This can help your savings to grow and keep pace with inflation. However, this comes with challenges too. To achieve your desired annual income, what returns would be needed? Once you have a figure, you also need to ask:

  • Are your expectations realistic?
  • How much risk will you need to take?
  • How will you manage market volatility?

It can be difficult to understand how a lump sum will translate into an income for what could be a 30 or 40 year long retirement. This is where financial advice can add value, helping you to grasp what giving up a Final Salary pension means for you in terms of income and lifestyle goals. You can’t transfer Final Salary pension with a value of more than £30,000 without seeking specialist financial advice.

Considering your lifestyle

One of the reasons that people consider transferring out of a Final Salary pension is the lump sum on offer. It can provide you with more flexibility in how and when you access your pension. For instance, you may plan to spend significantly more in the early years of your retirement.

However, in many cases, you can use other assets to create more flexibility and still benefit from the security of a guaranteed income. As a result, you need to consider your retirement lifestyle in the short and long term before you move forward with plans. Financial planning can put your options into perspective with your goals in mind. We’re here to help you create a retirement lifestyle that suits you, please get in touch.

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

Transferring out of a Defined Benefit pension is not in the best interest of the majority of pension savers.

market volatility

Does Market Volatility Affect Your Pension Choices?

If you’re retiring this year, you may be worried about what the market volatility caused by Covid-19 means for your options.

The good news is that Pension Freedoms, introduced in 2015, means you can choose how and when you access your retirement savings.

Market volatility may have affected the value of your pension but that doesn’t mean your overall plans have to be adjusted. However, it’s important that you understand the impact it could have.

The impact will depend on how you intend to access your pension.

  1. Taking a lump sum

Once you reach retirement age, it is possible to take your pension through lump-sum withdrawals. You can even choose to withdraw the entire amount, though this isn’t appropriate for most retirees.

Usually, you can withdraw up to 25% tax-free. If you’ve intended to take a lump sum out of your pension to take advantage of this, it’s worth assessing if your pension value has fallen. Withdrawals that exceed the 25% tax-free lump sum will be taxed as income and could push you into a higher Income Tax bracket. As a result, taking a lump sum may not be the most efficient way to access money.

  1. Purchasing an Annuity

An Annuity is a product you buy with your pension savings that delivers a lifetime income. As a result, if the value of your pension has fallen, you may find that the income you can purchase is now lower. But it is an option that can provide financial security throughout retirement.

The amount paid out will depend on the Annuity rate. For example, a 5% Annuity rate would pay out £5,000 every year for every £100,000 initially paid.

The Annuity rate you’re offered varies depending on a range of factors, including your age and health. You can also choose to purchase a joint Annuity, ensuring your partner would continue to receive an income if you passed away first, or one that rises alongside inflation to maintain spending power. These options would typically mean a lower level of income to begin with.

If you’d like to use an Annuity to fund retirement, you’ll need to assess how recent volatility has affected your overall pension value. This means you’re able to see what Annuity rates mean in terms of income. Take some time to shop around, different providers will offer varying rates. The good news is that with a guaranteed income, you won’t have to worry about market volatility affecting income in retirement.

  1. Using Flexi-Access Drawdown

Flexi-Access Drawdown allows you to take a flexible income that suits you, usually, the remainder will stay invested until you make another withdrawal.

This is the option where investment volatility can have the biggest impact. As your savings remain invested, you need to be aware of how your investments have performed. Continuing to take the same level of income during a downturn, as you did previously, will mean you need to sell more units to receive the same amount. This can deplete your pension quicker than expected if you haven’t considered it beforehand.

As you’re responsible for how and when you access your pension, you also need to ensure it lasts throughout your life, which will undoubtedly include some periods of short-term volatility. Therefore, you must consider downturns as part of your retirement plan.

Remaining exposed to the markets isn’t all negative though. Historically, markets have recovered in the long term. Keeping your pension invested means you have an opportunity to benefit from a recovery as well as long-term gains.

Creating a retirement plan

How and when is the ‘right’ time to access your pension will vary between retirees. It’s a decision that should focus on your retirement goals and long-term plans.

Remember, you don’t have to access your pension as soon as it becomes available. If you don’t need the savings yet, leaving your pension invested can give your investments a chance to recover in the long term and perhaps grow further.

You also don’t have to choose one of the above options exclusively. You can mix and match the options to suit you. For instance, you could withdraw your 25% tax-free lump sum at the start of retirement, use a portion to create a base income with an Annuity, and use Flexi-Access Drawdown to access the remainder at different points.

If you’d like to discuss your retirement plans, whether this is how current circumstances have affected your initial plans or you’re starting from scratch, please get in touch.

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

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

Pension Fund Divests from Fossil Fuels

UK’s Biggest Pension Fund Divests From Fossil Fuels, What Does It Mean?

The UK’s biggest pension fund, Nest, is beginning the process of divesting its huge portfolio from fossil fuels. But what does that mean and why is it making the change?

Nine million pension savers use Nest to build a retirement fund. It handles the retirement savings of many workers that have begun saving under auto-enrolment. It has £9.5 billion in assets under management. The move to divest from fossil fuels follows a wider trend of taking ESG (environmental, social and governance) issues into account when investing.

Divesting from fossil fuels

Divesting means getting rid of a business interest or investment. This may be shares in a specific company or sector. In this case, it refers to companies that have a business interest in the fossil fuel industry. Specifically, Nest plans to divest from companies involved in thermal coal, oil sands and arctic drilling by 2025.

In recent years, there has been a growing trend for considering ESG factors when investing. This has included other pension funds divesting from fossil fuels due to the impact of climate change too. But Nest is the largest pension scheme in the UK, representing an investment shift for millions of savers.

Research supports the move made by Nest. Findings indicate that it’s a change many employees would welcome. Some 65% of pension savers believe their pension should be invested in a way that reduces the impact of climate change. Just 4% strongly disagreed with this idea.

Despite this sentiment, only 1% have made a change to the way their pension is invested in the last year. This was down to a variety of reasons:

  • 38% had never thought about how their pension is invested
  • 25% assumed their money was already invested responsibly
  • 17% didn’t know they could change funds

Whether or not ESG factors are important to you, it’s essential you check how your savings are invested. Pension providers will offer a range of funds that will vary in their risk profile and goals. It’s usually simple to change the fund you’re invested in online.

Mark Fawcett, Nest’s Chief Investment Officer, commented: “Not only is this the right thing to do, it’s also what our savers want and expect from us. How can we offer them the prospect of a better retirement if we ignore the world they’ll be retiring into?”

The financial impact of divesting from fossil fuels

Considering ESG issues when investing appeals to many people, but there are often concerns about what it means financially. Does considering climate change, for instance, mean your returns will be lower?

The good news is that isn’t automatically the case. However, you still need to consider risk, diversification, goals and all the other factors you’d usually consider when investing when making decisions about ESG investing.

Figures from Nest show its fund that considers a range of ESG factors outperformed alternatives. In the five years to the end of March 2020, annualised total returns for Nest funds were:

  • 6% for the 2040 Retirement Date Fund
  • 0% for the High Risk Fund
  • 2% for the Ethical Fund.

It’s impossible to predict with certainty how different stocks and funds will perform over the short, medium, and long term. However, divesting from fossil fuels doesn’t mean you have to miss out on returns that will boost your pension savings. If you’re considering making ESG factors part of your pension investment plan, please get in touch.

Looking beyond pension investments

It’s not just pensions where you may want to think about divesting from fossil fuels or other ESG factors either. You may want to look at your wider investment portfolio with these in mind.

With Good Money Week approaching next month, which encourages sustainable investing, now is the perfect time to think about how your money is invested and whether it aligns with your wishes. With many ESG factors, the issues are subjective. This can make it difficult to understand how you can bring your views into your investment decisions while still achieving your wider financial aims. This is an area we can help you with.

Please get in touch to discuss your investments, pensions and ESG goals.

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

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

How advisers can 'rewire' their clients' brains

This article first appeared in Professional Adviser

Advisers who understand the workings of human bias will be able to step in and help their clients stick with their investment plan, even when emotions might be driving them to do something.

We all like to think we make sensible decisions, but the truth is that no one is quite as rational as they believe. This becomes especially true in times like these, when we find ourselves faced with extreme and prolonged uncertainty.

While much of the world's focus was on caring for friends and family when the pandemic first took hold, for advisers, the continued stock market volatility was - and still is - a challenge, with clients understandably concerned about the value of their portfolio and long-term financial outlook.

And in times of trouble, humans are more susceptible to emotional decisions, which makes the risk of potentially dangerous knee-jerk reactions that bit higher.

Renowned psychologists Daniel Kahneman and Richard Thaler both won the Nobel Prize for Economics in recent years for demonstrating how humans are prone to biased decision-making. This increased focus on ‘behavioural finance' has seen financial advisers and planners sometimes taking on a new role of mentor or counsellor to their clients.

While we remain in these challenging times, there are four common biases advisers can look out for based on these theories.

Loss Aversion

Experts have said that humans feel the psychological pain of losing around twice as powerfully as the pleasure of gaining. It's easy to see how this relates in a financial context.

When making investment decisions, people are more likely to focus on risks over potential gains. Individuals may be unwilling to make financial decisions that represent loss, such as selling an investment that has fallen below the price at which it was purchased, even though the decision itself may be the best option.

In times like now, when there has been a loss of value, the aim for advisers is to continue keeping clients focussed on the bigger picture. Remind them that the risk profile was considered tolerable at the time of the initial investment and that downturns were built into the financial plan.

The Semmelweis Reflex

Back in the 1800s, Hungarian physician Ignaz Semmelweis observed that ‘childbed fever' could essentially be eliminated if doctors washed their hands before they assisted with childbirth.

Semmelweis expected a revolution in hospital hygiene because of his findings, but it wasn't to be. This is because his hypothesis - that there was one cause of disease that could be easily prevented - ran counter to the prevailing medical ideology, which insisted that diseases had multiple causes.

As fitting an analogy as this may seem, in investment terms, it means clients might often reject new information because it contradicts their own established beliefs. For example, someone might believe that a certain percentage of their assets must be in cash, based on their age, for no other reason than that they have always believed it.

The role of an adviser is to provide clear evidence to clients and challenge existing views and beliefs. Explain why doing things differently can be advantageous and show them the benefits of new ways of thinking.


When faced with a tricky situation, humans have a tendency towards ‘fight or flight'. From an investor perspective, those who choose to ‘fight' are likely to be those who are highly-engaged, glued to market updates and might ask for regular changes to their portfolio.

Any good financial adviser knows that their job is to encourage against this chopping and changing.  Keep reminding them that there is a financial plan in place designed to take periods of volatility into account, and counsel against checking portfolio values all the time.


A familiarity bias occurs when a client only wants to invest in assets they know well. They might only want to consider FTSE shares, for example, and shy away from other assets that could drive returns, such as international shares.

One way to tackle this would be to demonstrate that a portfolio of international stocks is full of companies that clients may be familiar with. In this instance, you might look to show them that, by choosing international shares, they would be investing in companies such as Apple and Facebook, which may help to reduce anxiety.

Familiarity can also be built into your client experience. Simple touches like adding a photo to an email signature can help make clients feel more familiar with you, which in turn can help reduce any anxiety associated with using an adviser.

Those advisers who understand the workings of these theories will be able to step in and help their clients stick with their investment plan, even when emotions might be driving them to do something that may steer them away from their long-term goals.

3 Financial Lessons To Teach Young Adults Before They Go To University

Young adults planning to head to university this year have faced more challenges than usual thanks to Covid-19. Yet, come September, thousands will still be heading to university and, for some, that will mean independence for the first time.

Questions remain over how universities will tackle social distancing restrictions when it comes to lectures, seminars and accessing resources like the library. However, if your child or grandchild is moving away from home to attend university, they’ll need to take control of their finances no matter how courses are structured. If they haven’t had to pay things like rent or manage day-to-day outgoings before, it can be a steep learning curve.

It’s not surprising that taking control of finances can be a daunting prospect. In fact, 79% of students worry about making ends meet. In line with this, 77% stated they wish they’d had a better financial education before starting university. Luckily, there are some things you can teach them to help them manage their finances better as they strike out on their own.

  1. How to create a budget

First, is how to put together a budget and why it’s important.

For many first-year students, university life will be the first time they have to handle bills and all their day-to-day expenses. A budget can help keep them on track. It’s particularly important because of how student loans and grants are paid. Students will receive a lump sum at the start of each term, as a result, the money needs to last several months before the next instalment arrives.

Suddenly having a large amount in your account, certainly makes it tempting to splash the cash. However, it’s a step that could leave them short for the rest of the term. Going through what they’ll need to pay for each week or month can help manage how their income is spent, there may be some expenses they hadn’t previously considered too. Taking out one-off costs and committed spending can help create a weekly disposable income that they can enjoy.

The good news is that student accommodation is often paid termly too and includes bills, so you don’t have to worry about them missing rent payments.

  1. How overdrafts work

Student overdrafts are incredibly popular. These are typically interest-free while the student is still in education. Often the limit will increase each term or academic year. For instance, starting at £1,000 and reaching £3,000 in their third year. Some accounts will come with additional freebies that can be valuable, such as a free railcard.

An overdraft can be a useful way to manage finances throughout university. However, research from the Money Advice Service suggests it’s still an area where students could benefit from some guidance. Four in ten admitted they had gone over their overdraft limit or used an authorised overdraft, potentially leaving them facing hefty penalties.

With an overdraft, it can be easy to see the funds available as free money, rather than a source to fall back on occasionally. Managing an overdraft effectively goes back to budgeting.

It’s also important to look ahead to after they graduate, and interest starts being added to the overdraft. Keeping in mind that it will need to be paid back at some point can help students rein in their spending on non-essential items.

Some banks will offer an extended 0% interest period, where the overdraft limit will gradually reduce, helping new graduates slowly pay back what they owe. When opening a student account, it’s worth seeing if this is offered and what the eventual interest rate could be as a result.

  1. What to consider before using a credit card

In addition to overdrafts, students may find they’re offered a credit card for the first time too.

The good news is that not many students would turn to a credit card if they needed money. However, for the 14% that would, it’s important they understand how a credit card works and the potential negative effects to consider. Forgetting to make a payment or spending more than they can afford to pay back could leave them struggling financially for years to come.

The Money Advice Service research found that in 2018, 176,000 students had fallen back on, or missed payments on bills or credit cards for three months or more. It’s a mistake that could harm their credit rating, making securing loans, a mortgage, or other forms of credit far harder in the future.

Having an honest conversation about credit card interest rates and what a credit score means for their future, can help students understand why alternatives may be a better solution for them. Of course, there are times when a credit card is useful, but having a plan to pay it back is essential too.

Supporting students through university

There are plenty more financial lessons to pass on to young adults before they head to university and after they graduate. Making it clear you’re there to talk about financial concerns they may have and offer advice when they need it, can help create a positive attitude towards their finances.

Completing a degree can be expensive and you may want to offer financial support to your child along the way. Whether you hope to provide regular financial support or cover one-off costs, we’re here to help. From understanding what’s affordable to which assets are most appropriate to use, please contact us to discuss how you can help children or grandchildren as they head off to university.

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



5 Ways The Chancellor Could Recoup The Cost Of Covid-19

While the health concerns of the Covid-19 pandemic remain, some of the focus is now shifting to the economic impact. Measures taken to reduce the spread of infection and save jobs have cost the Government a huge amount that will need to be recouped in some way.

The final Covid-19 bill is impossible to estimate, we don’t know how things will change over the coming months. However, the Office for Budget Responsibility estimates the cost for the current tax year is likely to be more than £300 billion. The Government was expecting to borrow around £55 billion for the whole of 2020/21. But in the first two months of the tax year alone, it has borrowed £100 billion to cover the costs of the scheme implemented due to the pandemic.

Chancellor Rishi Sunak was appointed Chancellor in February this year. He’s already delivered a delayed Budget in March, as the pandemic was starting to take hold in the UK, followed by the Summer Statement in July. Both have focused on protecting people and the economy as Covid-19 spread. As the Autumn Budget is now approaching, his attention may be turning to how some of the costs can be recovered.

While nothing has been formally announced yet, speculation is mounting that some allowances will be reduced, some of which may affect you.

  1. Capital Gains Tax

Speculation that changes to Capital Gains Tax (CGT) will come in are rife after the Chancellor commissioned The Office of Tax Simplification to investigate if it’s “fit for purpose”. Compared to previous levels of CGT, the current rates are relatively low. This provides plenty of scope for allowances to be reduced or rates to rise.

CGT is paid on the profit when you sell certain assets. This may include a property that isn’t your main home, personal possessions worth more than £6,000 (excluding your car), investments not held in an ISA, and business assets.

Individuals have an annual exemption of £12,300 per tax year. Profit beyond this allowance is taxed. Basic rate taxpayers have a CGT rate of 10%, this rises to 20% for higher and additional rate taxpayers. Where the profit is made on property, an additional 8% tax is added for all Income Tax bands.

  1. Pension tax relief

A change in pension tax relief hasn’t been mentioned by Rishi Sunak yet. However, his predecessor Sajid Javid has called on the Government to reduce the amount of tax relief paid to high earners. It could now be something the current Chancellor is exploring too.

Assuming you don’t exceed your annual pension allowance, you receive tax relief at the highest level of Income Tax you pay. As a result, higher and additional rate taxpayers receive far more through this incentive. The Pensions Policy Institute found workers earning less than £50,000 made up 83% of taxpayers, but they received less than a quarter of pension tax relief paid.

A change to pension tax relief is likely to make it ‘fairer’ by offering a flat-rate tax relief for all pension savers.

  1. Pension triple lock

The pension triple lock guarantees that the State Pension will rise every year in line with either inflation, average wage growth or a minimum of 2.5%. It helps to protect spending power among pensioners. Maintaining the triple lock was a manifesto pledge, but some signs are pointing towards changes in the future.

The Chancellor told the Treasury Committee that it would be appropriate for the government to look at the triple lock at the “right time”. There are concerns that a spike in wages would make the guarantee to pensioners unaffordable in the coming years.

  1. Pension tax-free lump sum

Currently, when you access your pension, which is available from the age of 55, you can withdraw 25% of the money tax-free. Any further withdrawals are subject to Income Tax, the same way your salary or other sources of income may be.

The tax-free lump sum has proved a popular option among retirees and it’s a decision that’s likely to be unpopular with those approaching their retirement date. Reducing the tax-free lump sum to 20% could add £1.8 billion of extra revenue, the IFS has suggested, making it an attractive option for the Chancellor.

  1. Inheritance Tax

Again, any changes to Inheritance Tax rules would prove unpopular but there have been growing calls to reform the system to make it fairer and simpler.

At the moment, individuals can take advantage of two allowances when leaving wealth to loved ones. The nil-rate band is currently £325,000, with no Inheritance Tax due if your estate is below this figure. Those passing on their main home to children or grandchildren can also use the residence nil-rate band, currently set at £175,000. Unused allowance can be passed on to a surviving spouse or civil partner. In effect, this means couples can leave up to £1 million without worrying about Inheritance Tax.

Reducing the allowances or scrapping the additional residence nil-rate band could help raise tax revenue.

Rishi Sunak has some decisions to face before the Autumn Budget, and it’s likely some allowances will be affected. It may be appropriate to change plans when these are announced, but you shouldn’t act on speculation. If or when things change, we’ll be here to help you.

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

Please do not act based on anything you might have read in this article. All contents are based on our understanding of HMRC legislation which is subject to change.

Could Family Income Benefit Insurance Be Right For You?

When we plan for the future, it’s also important to think about the unexpected things that might happen. No one wants to think about passing away before their time but doing so can enable you to take steps to secure your family’s future if needed. One option that is worth considering is family income benefit insurance.

What is family income benefit insurance?

Family income benefit insurance is a type of Life Insurance policy that would pay out to your loved ones left behind if you passed away during the term. It would pay a regular income for a set period of time.

It’s a policy that can provide peace of mind if your family rely on your income to pay ongoing costs. A lump sum can be useful but if it’s to last for an extended period, it can involve a lot of budgeting and potentially the need to invest it, placing the capital at risk. The reassurance of a regular income can provide financial support to loved ones when they need it most.

As with other types of financial protection products, you’ll need to pay regular premiums during the term. How much these premiums are will depend on a range of factors, including the level of cover you want and policy term, as well as your health and lifestyle.

It is possible to take out a joint policy, providing protection if either you or your partner passes away. You also have the option to link the income paid out to inflation. This would mean higher premiums but ensure spending power is maintained.

What to consider before choosing a family income benefit policy?

If you think family income benefit insurance is appropriate for your priorities, there are two key things to think about when selecting a policy.

  1. How much income would your family need?

Understanding how much income your family would need to maintain their lifestyle is important. This should cover the essentials and you may also want to factor in some discretionary spending too.

You should start with the income you need now, but keep in mind that this figure can change if you were to pass away. For instance, you may have other policies or assets that would allow your family to pay off the mortgage, significantly reducing outgoings. On the other hand, if additional childcare would be needed, their expenses may start to rise.

Family income benefit insurance is designed to help your family keep on top of finances at a time when they’re grieving, so it’s important that the income delivered would be enough.

  1. How long would the income be needed?

Policies offer various terms too, so you need to consider how long they’d need an income for to maintain financial security. This will depend on your priorities and the overall circumstances of your family. If your partner is reliant on you for income, you may want to ensure a regular payment is made until they’d reach retirement age, or if you have young children, you may link the length of the policy to your youngest completing education.

Traditional Life Insurance or family income benefit?

Life insurance is a commonly chosen type of financial protection that can provide security for loved ones should you pass away too. However, there can be times when both types of protection can add value to your financial plans.

Life Insurance will pay out a one-off lump sum on your death should you pass away during the term of the policy. It can provide your family with a significant amount to pay higher expenses. This may include paying off the mortgage or other forms of debt or ensuring school fees are paid for until children reach adulthood. It can help your partner ensure the big outgoings are minimised.

However, a Life Insurance policy may not cover the day-to-day expenses in the long term, such as utility bills or children’s clothing.

This is where a family income benefit insurance policy can complement existing Life Insurance. It’s a step that can give your loved ones the safety net they need to grieve without having to worry about day-to-day costs or taking on additional work.

It’s important that all financial protection policies are considered with your priorities in mind. Please contact us to discuss if family income benefit insurance should be part of your financial plan or if there are alternative solutions that would be more appropriate.

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

What Should You Check When Reviewing Your Pension?

Have you reviewed your pension lately? Even though we make regular contributions to pensions, it’s not often something we think about until retirement is approaching. However, keeping track of progress during our working lives is important too.

Figures show that pension savers have been using their time in lockdown to get to grips with their retirement pots. Some 37% of pension savers, the equivalent of seven million people, have taken action relating to their pension in the last few months. One in seven admitted that the lockdown has prompted them to think about their pensions more.

So, if it’s been a while since you looked at how your pension is growing, now could be the perfect time. But what should you focus on? These seven areas are a good place to start.

  1. The total value of your pension

The headline figure is probably what draws your attention when you look at your pension, and it’s something you should keep an eye on. Yet, it’s a task just 15% have done during lockdown.

Keeping track of the value of your pension can help you understand whether you’re on target to meet goals and give an overview of how investments perform. The current value alone doesn’t provide you with all the information that you need, which is where the forecast comes in.

  1. Check your pension forecast

It can be difficult to understand how the value of your pension now will affect your retirement. Pension providers will offer a forecast, indicating how your savings are likely to grow over time. Keep in mind, this isn’t guaranteed, but it can be a useful base to work from.

With a forecasted lump sum, you’re in a better position to understand the lifestyle your savings will afford you. A financial planner can help put this into the context of your goals, such as the annual income it will deliver.

  1. Act if you have a pension gap

Acting if you find there is a gap between your pension forecast and the amount you need to meet aspirations can help set you on the right track. The sooner you act, the easier it is to close the gap or seek alternative solutions. Even a small contribution increase can have a big impact if it’s taken early in your career thanks to the compounding effect.

The figures found 5% of pension savers have increased their contributions during lockdown. It’s a step that could make your future more financially secure.

  1. Understand where your pension contributions are coming from

Every month, you’ll probably see a portion of your salary go into your pension. But it’s likely you benefit from other contributions too. Understanding the impact these have on your overall savings can help to highlight why adding to your pot is important.

First, if you’re employed, your employer will need to make contributions on your behalf. An employer must contribute 3% of your pensionable earnings. Second, the Government also provides tax relief on the contributions you make. Tax relief is set at the highest rate of Income Tax you pay.

In both these cases, your pension is effectively benefitting from ‘free money’ when you contribute.

  1. How your pension savings are invested

How a pension is invested is often overlooked. But it’s an important part of managing your retirement savings and making the most out of contributions.

When you first start saving into a pension, your money will be invested in the default fund. However, pension providers will offer alternatives. These will often include a variety of risk profiles or the option to select an ethical investment fund. As with when you’re investing outside of a portfolio, you should consider your goals, investment time frame and capacity for risk.

Just 8% of people have checked where their pension is invested during lockdown. However, 5% have made a change to their pension investments, indicating that for many the default fund may not be the right option.

  1. Your pension age

A pension provider will make an assumption about when you plan to retire, usually linked to the State Pension age. If you plan to retire earlier or continue working past this age, you should update your profile.

How your pension is invested may be affected by your retirement date. For instance, many pension providers will move savings to a lower-risk investment fund as your retirement date draws near to reduce the risk of volatility significantly affecting value. If your retirement date is wrong, this may not align with your plans.

  1. Check if your employer offers additional pension incentives

Your employer may offer additional incentives to encourage you to save more into a pension. These can prove valuable and help your retirement savings grow faster.

Some employers will match your contributions up to a certain level. In this case, increasing your own contributions would mean you receive even more ‘free money’. A salary sacrifice scheme may also be an option that’s available to you.

Please get in touch if you’d like to discuss your pension and what it means for retirement. The research found 38% of people lack confidence in their financial situation, our goal is to help you feel secure about your future.

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

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

Planning for a 100-Year Life

When you think about your lifestyle goals and financial plan, how far ahead do you look? It wasn’t so long ago that planning to reach 80 meant you could be sure of financial security throughout your life. But now, it’s becoming increasingly common to celebrate your 100th birthday, bringing new challenges to planning.

Just a century ago, 1% of babies born were expected to live to 100. As healthcare and a range of other factors improved, life expectancy has increased too. If you’re a female aged 60, there’s a 12.3% chance of turning 100, for 60-year-old men it's 8.1%. If you’re 40 the chance of reaching 100 is even greater, at 18.7% and 13.3% for men and women respectively.

While improving health conditions are certainly positive, living longer lives means we need to change lifestyle too.

Changing lifestyles

When you think about preparing to live longer, it may be money that springs to mind first. After all, a longer life means you’ll need to establish financial security that will last longer, probably with a longer time spent in retirement. But as with all financial plans, your goals and lifestyle should remain at the centre.

Previously, life was broadly split into three stages of education, working and retirement. We’re already seeing these stages change. It’s now far more common to find people transitioning into retirement, spending time on education in later years, or going back to work in some form after retiring.

You might be able to retire at 65, but would you want to spend 35 years in retirement? For some, this sounds ideal, but for others, it’s a long time not to work in some way, whether that’s through traditional employment or starting their own business.

Planning for a 100-year life should start with thinking about how you’d like your life to look.

  • What are your goals at 60, 70 and beyond?
  • When would you like to retire, and would you prefer to transition into retirement?
  • What makes you fulfilled?
  • What are your priorities now, do you expect them to change?

Of course, these lifestyle goals aren’t set in stone. In fact, regularly reviewing them and seeing if they still align with your aspirations and circumstances is important. But having an idea of what you’d like to achieve can provide direction and confidence.

Longer lives mean rethinking traditional lifestyle models, it’s a chance to think about what you want.

Managing your finances for 100 years

While goals and lifestyle aspirations are essential, we can’t ignore the fact that finance plays an important role in achieving this. Planning for a 100-year life presents new challenges.

It can be difficult to understand how personal wealth will change over a 10-year period as you need to factor in a range of areas, from investment performance to inflation. When looking at a 100-year life, you may be considering these factors over several decades, making it even harder to gauge how wealth can change and what’s sustainable.

This is where financial planning can help. Using a range of tools, we can help you bring together lifestyle aspirations with your current financial situation. It’s a step that can help you understand how your wealth will change depending on the decisions you make, whether that’s contributing more to your pension for a longer retirement or using a lump sum to tick something off your bucket list.

As we live longer, finances naturally need to stretch further and can become more complicated, and financial planning becomes even more important.

Planning for the next generation

As you consider life expectancy and financial planning, you may be considering what you’ll leave behind for loved ones.

Considering how our finances would hold up during a 100-year life is important for us all as it becomes more common. But it’s even more crucial when helping the next generation plan. One in three children born today will live to see their 100th birthday. It won’t become a rare milestone, but the norm. As a result, planning for a 100-year life needs to become the norm too.

You may be in a position to help children and grandchildren, whether it’s passing on knowledge or making regular pension contributions on behalf of a child. Small steps taken in the early years can help create a solid foundation that can be built-on, including learning positive money habits.

As you set out your own financial plan, this should include the inheritance you intend to leave behind. It can help you understand how loved ones will benefit and ensure the necessary steps are taken, such as writing a will or reducing Inheritance Tax liability. It’s a step that ensures your wishes are carried out and can help loved ones prepare for longer lives too.

If you’d like to discuss how your wealth will change over time, please get in touch.

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 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.


5 Ways You Can Reduce Tax Liability In Retirement

When you retire, there are a lot of financial decisions that need to be made as you start accessing the savings and investments you’ve built up. It’s natural to have lots of questions about your financial security at this point, such as:

  • How much income will I receive from my pension?
  • How long will my savings last for?
  • How should I access my pension?

But one important question is often overlooked: How much tax will I pay?

How and when you access your pension, savings and investments can have an impact on your tax liability. Planning your retirement income with tax in mind can help reduce the amount of tax you pay, helping your savings go further. It should be one of the areas you consider as you approach retirement and that financial planning can help you understand with your circumstances in mind.

In some cases, it’s possible to create a tax-free retirement income or reduce liability greatly. So, what should you consider when assessing retirement income?

  1. The Personal Allowance

The Personal Allowance is the amount of income you’re entitled to receive tax-free each year. For the 2020/21 tax year, the Personal Allowance is £12,500 for the majority of people. As a result, it’s important for planning your retirement income.

The Personal Allowance covers all forms of income, including your State Pension and income from investments, for example. Once you factor in all income sources in retirement, the total will likely exceed the Personal Allowance, but it provides a base for building a tax-efficient income. As the allowance resets with each tax year, spreading out or delaying taking an income at times can help you fully make use of the tax benefit.

It’s worth noting that if you’re married or in a civil partnership, the marriage allowance allows one person to transfer up to £1,250 of their Personal Allowance to their partner too.

  1. Pension withdrawal tax-free allowance

If you’ve been paying into a Defined Contribution pension during your working life, it will usually become accessible when you turn 55. This includes 25% available to withdraw tax-free. You can choose to take a 25% lump sum, tax-free, when you first access your pension, or you can spread the tax-free benefit over multiple withdrawals.

How and when you access your pension can have an impact on your income and lifestyle for the rest of your life. So, it’s important to understand the long-term impact of taking the tax-free lump sum.

  1. Withdrawing from ISAs

ISAs (Individual Savings Accounts) offer a tax-efficient way to save and invest. Each tax year, adults can add up to £20,000 to ISAs, either contributing to a single account or spreading it over several. Through an ISA you can either save in cash, earning interest, or invest to hopefully deliver returns. The key benefit of ISAs is that interest or returns earned aren’t taxed.

As a result, you can make ISA withdrawals to supplement your pension income and other sources in retirement without increasing your tax liability.

  1. Capital Gains Tax allowance

Selling certain assets for profit can result in Capital Gains Tax, this includes personal possessions worth more than £6,000 (excluding your car), a second home, and shares that aren’t held in an ISA or PEP (Personal Equity Plan).

However, there is an annual Capital Gains tax-free allowance, for individuals it is £12,300. In retirement, this can be a useful way to increase your tax-free income. It’s important to understand your assets, their value and how they can create an income.

  1. Dividend Allowance

If you’re invested in companies that pay a dividend, the Dividend Allowance can boost your income without affecting the amount of tax you need to pay. This is on top of any dividend income that falls within your Personal Allowance.

For the 2020/21 tax year, the dividend allowance is £2,000. Carefully planning your investments and expected dividend allowance can help you boost your retirement income by £2,000 without facing additional tax charges.

If your dividend income exceeds the allowance, you will need to pay tax. The tax rate is linked to your tax band and may be as high as 38.1% if you’re an additional rate taxpayer.

Depending on your circumstances and goals, there may be other allowances and reliefs you can take advantage of too. Using a combination of saving products, such as personal pensions, stocks and shares ISAs and general saving accounts, it may be possible to achieve the retirement income you want while reducing tax liability. Whether you’re nearing retirement or are already retired, it’s worth considering how much tax you’ll pay and whether there are allowances that apply to your situation.

Planning for taxation changes

While the above information is accurate for the moment, allowances, levels of taxation and reliefs do change. As a result, it’s important that your retirement plan and income are reviewed at regular points. This allows you to take advantage of any changes and adjust how and when you take your income if necessary. If you’d like to discuss your tax liability during retirement, please get in touch.

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

Junior ISAs: Everything You Need To Know About Saving For Children

Building a nest egg for a child can help set them on the path to a financially secure future and highlight why saving is important. One of the most popular ways to save for a child or grandchild is using a Junior Individual Savings Account (JISA). During 2017/18, money was added to over 900,000 JISAs.

Money held in a JISA isn’t accessible until the child turns 18, making it an excellent way to save for the milestones they’ll reach in early adulthood. You may choose to save with the hope that it will be used to fund further education, learn to drive or get on the property ladder. Having a lump sum to use can make it easier for children to achieve goals and create a secure foundation as they become independent.

JISAs: The basics

JISAs operate in much the same way as adult ISAs do.

You can use a JISAs to save in cash, earning interest on deposits, or to invest and hopefully deliver returns over the long term. JISAs are also a tax-efficient way to save, interest or returns earned are tax-free.

One area where the JISA does differ is the subscription limit, the amount you can deposit each tax year. In this year’s budget, Chancellor Rishi Sunak significantly increased the JISA subscription limit from £4,368 in 2019/20 to £9,000 in 2020/21. The new limit means parents and grandparents can build a substantial nest egg for children.

The JISA annual allowance can’t be carried forward and if it’s not used during the tax year, it’s lost.

A parent or legal guardian must open a JISA on the child’s behalf, however, other family and friends can then contribute as long as the annual limit isn’t exceeded.

The money placed within a JISA belongs to the child and can’t be withdrawn until they’re 18, apart from in exceptional circumstances. However, when the child reaches 16, they will be able to manage the account, for example, transferring to a different provider to achieve a better interest rate.

If you’re considering opening a JISA on behalf of a child, one of the first things to do is to decide between a cash account and a stocks and shares account.

Cash JISA vs Stocks and Shares JISA

As with adult ISAs, you have two key options when saving through a JISA: cash or invest.

Both options have pros and cons, which one is right for you will depend on goals and time frame.

Cash JISA: The money deposited within a Cash JISA is secure and operates in a similar way to a traditional savings account. Assuming you stay within the limits of the Financial Services Compensation Scheme (FSCS), the money would be protected even if the bank or building society failed. The deposits within a JISA will then benefit from interest, helping savings grow. While JISA interest rates are typically more competitive than the adult counterparts, you still need to consider inflation. When interest rates don’t keep pace with inflation, savings lose value in real terms, reducing spending power. Over several years the impact can be significant.

Stocks and Shares JISA: Rather than earning interest, the money deposited within a Stocks and Shares JISA is invested with the aim of delivering returns. The key benefit is that it offers an opportunity to create higher returns than interest would offer. However, all investments involve some level of risk and in the shortterm, it’s likely volatility will be experienced at some points. This means the value of savings can fall based on the performance of investments. However, historically, investments have delivered returns over a long-term time frame.

So, which option should you pick?

How you feel about investment risk should play a role in choosing between a Cash JISA and a Stocks and Shares JISA. However, the time frame is also important. Typically, you shouldn’t invest with a short time frame (less than five years) as this places you at a higher risk of being affected by short-term volatility. In contrast, longer time frames give you a chance to smooth out the peaks and troughs of investment markets.

If you’re unsure whether building a nest egg through cash or investing is right for you, please get in touch.

You don’t have to choose between a Cash JISA and a Stocks and Shares JISA either. If your goals mean you want a mix of cash savings and investments when building a nest egg, it is possible to open both types of JISA in your child’s name. The total contributions to JISAs must not exceed the annual subscription limit.

If you’d like to start saving for your child or grandchild, please contact us. Whether you want to invest through a JISA or discuss alternative options, we’re here to help you create a plan that meets your goals.

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

What Would Negative Interest Rates Mean?

With interest rates at an all-time low and the economy facing uncertainty, you may have read headlines about whether negative interest rates are the next step. But what would that mean in practice and is it an option that would really be considered in the UK?

Ever since the 2008 financial crisis, interest rates have been low. Earlier this year, there were suggestions that the Bank of England would gradually start to increase its Base rate as the economy continued to recover. However, the Covid-19 pandemic has changed that. In March, the central bank decided to cut the interest rate twice in a month.

Lowering interest rates is one of the tools central banks around the world use to stimulate economic growth as it lowers the cost of borrowing. With coronavirus disrupting normal business practices, the Bank of England first cut its base rate from 0.75% to 0.25% on 11th March 2020 and then slashed it again to 0.1% on the 19th March 2020, the lowest it’s ever been.

With the interest rate hovering just above zero, the possibility of negative interest rates is rising.

How would negative interest rates affect you?

You can split the impact of negative interest rates into two areas depending on whether you’re saving or borrowing.

Let’s start with saving.

Usually, when saving, you’d earn interest on the deposits. For example, with £1,000 in a savings account earning 3%, you’d receive £30 after a full year. If the interest rate is negative at -3%, you’d instead owe the bank £30, in effect paying to save your money.

Once you factor in the impact of inflation on your spending power, savings can quickly become eroded if interest rates are below zero. While using a savings account is still important in some cases, such as holding your emergency fund, it may mean that alternatives should be considered to get the most out of your money, such as investing.

Moving on to borrowing, in theory, negative interest rates are good news.

The cost of borrowing should reduce as interest rates fall. Using a mortgage as an example, you’d still need to make repayments, however, with a negative interest rate, the outstanding amount is reduced each month by more than what you’ve paid. It can reduce debt quicker. However, it’s worth noting that some mortgages have a ‘floor’ interest rate that it won’t go below.

Negative interest rates: From Europe to Japan

While negative interest rates have never been implemented by the Bank of England they have been used elsewhere.

Sweden’s central bank cut interest rates to -0.25% in July 2009, in the wake of the financial crisis. Since then it’s been used by other European banks too, including the European Central Bank which covers the 19 countries that have adopted the euro, as well as Japan.

There are a variety of reasons why negative interest rates are used. However, during times of recession or economic hardship, people and businesses tend to hold on to their cash, waiting for the economy to improve. A lack of spending by businesses and individuals can weaken the economy further. As a result, negative interest rates can be used to encourage people to spend and drive the economy forward, though there are risks associated with the practice too.

While negative interest rates have been used before, they are by no means the norm and are still considered unconventional.

So, are negative interest rates coming to the UK?

It’s impossible to say for certain and much of the decision will depend on how the economy and businesses respond over the coming months. When asked about the potential for negative interest rates to be introduced in May during a Treasury Select Committee, the Bank of England’s Governor, Andrew Bailey said negative interest rates were under ‘active review’.

Bailey added: “We do not rule things out as a matter of principle. That would be a foolish thing to do. But can I then follow that up by saying that doesn’t mean we rule things in.”

As always, it’s important to keep an eye on your financial plan with current conditions in mind. However, responding to speculation should be avoided. Instead, if you’re concerned about the introduction of negative interest rates, keep in mind that your financial plan has been built with your goals at the centre. There may be a time when negative interest rates are announced and we’re here to help you assess your financial plan if this should happen. Please get in touch if you have any questions.

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

Simon Goldthorpe: How to get in the best shape for your PII renewal

Simon Goldthorpe: How to get in the best shape for your PII renewal

3rd July 2020

This article first appeared in Professional Adviser.


Renewing PI insurance is one of the biggest challenges financial advisers currently face, writes Simon Goldthorpe, who outlines a few ways advisers can potentially save on their yearly renewal…

Insurers have become increasingly nervous in the past few years about services such as DB transfers, thanks to high-profile mis-selling scandals.

Other factors such as the Financial Ombudsman Service increased limit for advice-related complaints compound matters and mean advisers have been grappling with higher premiums, soaring excesses and tighter restrictions.

The difficulties have been highly documented and the FCA recently announcing its latest measures to protect consumers means the process of securing cover is unlikely to ease any time soon.

But it’s not all doom and gloom. There are several things advisers can do to help strengthen their position and increase their chances of getting cover at a rate and terms that work for them.

Detail, detail, detail

The proposal form is the minimum amount of information to be provided on your firm, but also an ideal place to promote your business. Set out all the relevant information in a clear and easy-to-understand way that creates a narrative around your work – soft facts are critical.

In a separate document, provide notes, commentary, graphs and calculations around cases that you‘ve worked on. Start with the bigger cases, as these represent a higher risk to you and an insurer.

Show where your business is strong and where you’ve minimised risk, but be upfront and honest in highlighting the risks that remain.

An underwriter will consider your renewal against similar firms, so giving them a wealth of useful information will make their life easier and also build a better case for your business. It may also help you to reduce the cost of your cover.

Start early

Set aside a good amount of time to collate the above information so that it doesn’t become a last-minute burden.

If, for example, you have hundreds of files to review, work on a few each month. Identify some of your riskier cases and pull out the relevant facts as you go, rather than trying to do it all in the last few weeks before your renewal date.

For DB transfers, it might make sense to start with the cases that resulted in the largest fees, or a review of your biggest clients. Whatever your preference, starting early will put you in far better stead by the time that the renewal comes around.

Focus on ongoing service

Positive ongoing relationships, rather than one-off transactions, are much less likely to result in costly complaints. Highlight these to show why your business should be viewed as less of a risk.

Small things to suggest how you are doing things right and why your clients trust you, can go a long way. Bring in concrete examples of where you undertake regular review meetings or issue monthly newsletters and investment bulletins. Having a lot of clients who are family members also makes complaints less likely.

Finally, showing that clients have not lost out is a powerful sign of lower risk and therefore chances of a complaint, so look at bringing this to the fore.

Demonstrate quality control

If you’re concerned about your chances of securing cover it may be worth considering appointing a quality control specialist.

As an example, having all advice pre-approved to our own standards has enabled us at Beaufort Financial to demonstrate oversight of practices across the firm, something which has become integral to our ongoing cover as a result.

Having an independent expert in place to ensure all advice meets requirements will tell an underwriter than your firm takes compliance seriously and that you are doing what you can to get things right.

In this increasingly challenging market, following these steps will help you formulate a careful submission that gives you the best chance of securing competitive PI insurance for your firm.

The Quick Guide To Bonds

When it comes to investing, it’s probably stock markets and shares that come to mind. Yet the average investment portfolio uses various asset classes to deliver returns and manage risk. One important part of your portfolio may be bonds.

Bonds can also be known as gilts, coupons and yields, which, along with other financial jargon, can make it difficult to understand how they fit into your financial plan. This quick guide can help get you up to speed.

What is a bond?

In simple terms, a bond can be thought of like an IOU that can be traded in the financial market.

Bonds are issued by governments and corporations when they want to raise money. When you purchase a bond you effectively become the issuer of a loan, receiving payments for the loan in the future. There are typically two ways that a bond pays out:

  • A lump sum when the bond reaches maturity
  • Smaller payments over the term, this is often a fixed percentage of the final maturity payment

If you’re viewing a bond as a loan, the lump sum at maturity would be like receiving your initial investment back whilst the small payments are equivalent to interest incurred. Bonds can be a useful asset to invest in if you’re focused on creating an income rather than growth.

Unlike stocks, you don’t have any ownership rights when you purchase a bond. As a result, you won’t benefit if a company performs well and you’ll be somewhat shielded from short-term stock market volatility too. Whilst all investments carry some risk, bonds are usually classed as a lower-risk asset than traditional stocks and shares.

That being said, it is possible to lose money when investing in bonds. This may occur if the issuer defaults on payments or you sell a bond for less than you paid. You should consider investment time frames, goals and risk before you decide to purchase government or corporate bonds.

Buying and selling bonds

Individual investors can purchase bonds, usually through a broker, as can professional investors, such as pension funds, banks and insurance companies. Initially, government bonds are often sold at auctions to financial institutions with bonds then being resold on the markets.

If you buy a bond, you have two options: hold or trade.

If you choose to hold a bond, you simply collect the regular repayments and wait until it reaches maturity, when you’ll receive a lump sum.

However, there is also a secondary market for selling bonds to other investors. If this is your plan, the fluctuations in price are important to consider as well as the value the bonds offer other investors. If you intend to sell, it’s important to understand the maturity and duration of the bond, as well as understanding the demand in the secondary market.

Whilst we’ve mentioned above that bonds can shield you from some of the stock market volatility, that doesn’t mean bond prices don’t change. Numerous factors can affect the value of bonds, from the interest rate and other Government policies to the demand for bonds. These movements can affect the expected yield, which can end up negative meaning the repayments add up to less than what you paid.

How do bonds fit into your investment portfolio?

Bonds are just one of the assets that are used to create an investment portfolio that suits you.

If you’re investing for income, rather than growth, choosing bonds to make up a portion of your portfolio can deliver a relatively reliable income stream.

One of the key things to consider when investing is your risk profile. Typically, bonds are considered less risky and experience less volatility when compared to traditional stocks. As a result, they can be used effectively to help manage investment risk. The lower your risk profile, the more likely it is that your portfolio will include a higher portion of bonds. Of course, other assets can be used to adjust and manage your risk profile too and not all bonds have the same level of risk.

The most important factor when creating an investment portfolio is that it matches your risk profile and goals. If you’d like to chat to us about how bonds are used to balance your portfolio, please get in touch.

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

The Danger Of Holding Too Much Cash

How much of your wealth do you hold in cash? Whilst it’s often viewed as the ‘safe’ option, there is a danger of your assets losing value in the long term and holding too much in cash too.

It’s easy to see why people choose to hold large sums in cash. As it’s something we handle every day, whether physically or digitally, it can seem more tangible than other assets. The Financial Services Compensation Scheme (FSCS) also protects up to £85,000 should a bank or building society fail per individual. The combination of these factors may mean you view cash as the most appropriate way to hold wealth.

However, cash does lose value and this is particularly true in the current low-interest climate.

Interest rates have been at an historic low for more than a decade following the 2008 financial crisis. The Bank of England has recently cut rates even further. In March, as it became apparent Covid-19 would have an economic impact, the central bank slashed the base interest rate to just 0.1%, the lowest level on record.

Whilst potentially good news for borrowers, the rate cut isn’t positive for savers. It means your savings aren’t likely going to deliver the returns they once were, especially if you compare the current rates to the pre-2008 ones. Before the financial crisis, you could expect to enjoy interest rates of around 5%.

At first glance, lower interest rates can seem frustrating but don’t mean there’s any need to change how you hold assets. After all, your money is secure and whilst it might not be growing very fast, it’s not going down, right? This is true if you’re just looking at the amount that’s in your account. However, in real terms, the value of your savings will be falling.

Inflation: Affecting the value of savings

The reason the value of cash savings falls in real terms is inflation. Each year the cost of living rises and if interest rates fail to keep pace with this, your savings are gradually able to purchase less and less.

The Consumer Price Inflation (CPI), one of the measures for calculating inflation, for April 2020 suggests the inflation rate was 0.9%. This figure was down on long-term averages due to coronavirus restrictions, however, it’s still higher than the base interest rate. As a result, the spending power of cash savings will have fallen.

Year-to-year, the impact of inflation can seem relatively small. Yet, when you look at the impact over a longer period, it highlights the danger of holding too much in cash.

Let’s say you placed £30,000 in a savings account in 2000. Following almost two decades of average inflation of 2.8% a year, your savings in 2019 would need to be £50,876.75 to boast the same spending power. With low-interest rates for more than half of this period, it’s unlikely a typical savings account would help you bridge this gap.

When is cash right?

Whilst inflation does affect the spending power of cash savings, there are times when it’s appropriate.

If you need ready access to savings cash accounts are often suitable, for example, if you have an emergency fund. When you’re saving for short-term goals (those less than five years), a savings account should also be considered. Over short saving periods, inflation won’t have as much of an impact and can preserve your wealth for when you need it.

However, when setting money aside for long-term goals, investing may be a better option that’s worth considering.

Investing: When should it be considered?

Investing savings means you have an opportunity to beat the pace of inflation with returns, therefore, preserving or growing your spending power.

However, investment returns can’t be guaranteed and short-term volatility can reduce values. For this reason, investing as an alternative to cash should only be considered if your goals are more than five years away. This provides an opportunity for investments to recover from potential dips in the market.

If you’d like to talk to one of our financial planners about the balance of your assets, please contact us. Our goal is to align aspirations with financial decisions, helping you to strike the right balance.

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

Cashflow Planning: Helping To Answer ‘What if…’ Questions

When you begin making a financial plan, you could be looking several decades ahead, and we all know the unexpected can derail even the best-laid plans. So, as you’re setting out goals, it’s not uncommon to wonder if you’d still be able to meet them if things outside of your control have an impact.

When you start putting together a financial plan one of the valuable tools that can put your mind at ease is cashflow planning.

What is cashflow planning?

Cashflow planning is a tool that helps forecast how your wealth will change over time. We can use this to show how your assets will change in value in a range of circumstances, such as average investment performance or income withdrawn from a pension. It’s a step that can help you have confidence in the lifestyle and financial decisions you make.

However, the variables can be changed to highlight the impact of what would happen if things don’t quite go according to plan. Whether it’s down to a decision you make or something out of your control, cashflow planning can highlight the short, medium and long-term consequences on your finances and goals. As a result, it can be a useful way of answering ‘what if’ questions that may be causing concern.

Answering ‘what if’ questions

If you’re asking ‘what if’ questions relating to your financial plan, they can be split into two categories: the ones you have control over and those that you don’t.

Those that you do have control over often stem from wanting to take a certain action but being unsure if your finances match your plans. These types of questions could include:

  • What if I retire 10 years early?
  • What if I provide a financial gift to children or grandchildren?
  • What if I take a lump sum from investments to fund a once in a lifetime experience?

Often with these questions, there’s something you want to do, or at least thinking about, but you’re hesitant to do so because you’re worried about the long-term impact. You may need to consider the effects decades from now, which can be challenging. Cashflow planning can help provide a visual representation of the impact a decision would have.

We often find that clients’ finances are in better shape than they believe, allowing them to move forward with plans with confidence.

The second type of ‘what if’ questions, those you don’t have control over, often stem from worries about the future. These could include:

  • What if investments returns are lower than expected?
  • What if I passed away, would my partner be financially secure?
  • What if I needed care in my later years?

Cashflow modelling can help you understand how these scenarios would have an impact on your short, medium and long-term goals. It can highlight that you already have the necessary measures in place, allowing you to focus on meeting goals.

Alternatively, you may find there’s a ‘gap’ in your financial plan. However, by identifying this, you’re in a position to take steps to put a safety net in place. If you’re worried about the financial security of loved ones if you were to pass away, for example, this could include purchasing a joint Annuity, providing a partner with a guaranteed income for life, or taking out a life insurance policy.

Confronting concerns about your future can be difficult, but it’s a step that can lead to a more robust financial plan that you have complete confidence in.

The limitations of cashflow planning

Whilst cashflow planning can be incredibly useful, there are limitations to weigh up too.

First of all, how useful the forecasts are will be dependent on the data that’s input. This is why it’s important to consider assets and goals when gathering information, as well as keeping the data up to date.

Second, cashflow planning will have to make certain assumptions. This may include your income over an extended period or investment performance, which can’t be guaranteed. This is combatted by modelling different scenarios and stress testing plans, helping to give you an idea of how your financial plan would perform under different conditions.

Cashflow modelling is just one of the tools that can support your financial plans and it can be an incredibly useful way of giving you a potential snapshot of the future and easing concerns. If you’d like to discuss your aspirations and the steps you could take to ensure you’re on the right track, please get in touch.

Accessing Your pension: Annuity vs Flexi-Access Drawdown

In the past, the majority of people saved for retirement over their working life, gave up work on a set date and used their pension savings to purchase an Annuity. However, as retirement lifestyles have changed, so too have the options you’re faced with as you approach the milestone. If you’re nearing retirement, you may be wondering if an Annuity or Flexi-Access Drawdown is the right option for you.

Since 2015, retirees have had more choice in how they access a Defined Contribution pension. If you want your pension to deliver a regular income, there are two main options – an Annuity or Flexi-Access Drawdown – to weigh up. So, what are they?

Annuity: An Annuity is a product you purchase using your pension savings. In return for the lump sum, you’ll receive a regular income that is guaranteed for life. In some cases, this can be linked to inflation, helping to maintain your spending power throughout retirement. As the income is guaranteed, an Annuity provides a sense of financial security but doesn’t offer flexibility.

Flexi-Access Drawdown: With this option, your pension savings will usually remain invested and you’re able to take a flexible income, increasing, decreasing or pausing withdrawals as needed. Flexi-Access Drawdown provides the flexibility that many modern retirees want. However, as savings remain invested they can be exposed to short-term volatility and individuals have to take responsibility for ensuring savings last for the rest of their life.

There are pros and cons to both options, and there’s no solution that suits everyone when considering which option should be used. It’s essential to think about your situation and goals at retirement and beyond when deciding.

It’s worth noting, that pension holders can choose both an Annuity and Flexi-Access Drawdown when accessing their pension. For example, you may decide to purchase an Annuity to create a base income that covers essential outgoings, then using Flexi-Access Drawdown to supplement it when needed. It’s important to strike the right balance and other options could affect your decision too, such as the ability to take a 25% tax-free lump sum.

5 questions to ask before accessing your pension

  1. What reliable income will you have in retirement?

Having some guaranteed income in retirement can provide peace of mind and ensure essential outgoings are covered. But this doesn’t have to come from an Annuity. Other options may include the State Pension or a Defined Benefit pension.

Calculating your guaranteed income can help you decide if you need to build a reliable income stream or are in a position to invest your Defined Contribution pension savings throughout retirement. If you decide Flexi-Access Drawdown is an appropriate option for you, it’s a calculation that can also inform your investment risk profile.

  1. What lifestyle do you want in retirement?

When we think of retirement planning, it’s often pensions and savings that spring to mind. However, the lifestyle you hope to achieve is just as important. Do you hope to spend more time on hobbies, with grandchildren or exploring new destinations, for instance? Thinking about where your income will go, from the big-ticket items to the day-to-day costs, can help you understand what income level you need.

  1. Do you expect income needs to change throughout retirement?

This question should give you an idea of how your income will change throughout retirement. Traditionally, retirees see higher levels of spending during the first few years before outgoings settled, with spending rising in later years again if care or support was needed.

However, your retirement goals may mean your retirement outgoings don’t follow this route. If you decide to take a phased approach to retirement, gradually reducing working hours, you may find that a lower income from pensions is required initially. Considering income needs at different points of retirement can help you see where flexibility can be useful.

  1. Are you comfortable with investing?

Flexi-Access Drawdown has become a popular way for retirees to access their savings. There are benefits to the option but you should keep in mind that savings are invested. As a result, they will be exposed to some level of investment risk and may experience short-term volatility. Before choosing Flexi-Access Drawdown, it’s important to understand and be comfortable with the basics of investing.

Investment performance should also play a role in your withdrawal rate. During a period of downturn, it may be wise to reduce withdrawals to preserve long-term sustainability, for instance. This is an area financial advice can help with.

  1. Do you have other assets to use in retirement?

Whilst pensions are probably among the most important retirement asset you have, other assets can be used to create an income too. Reviewing these, from investments to property, and understanding if they could provide an income too can help you decide how to access your pension.

We know that retirement planning involves many decisions that can have a long-term impact. We’re here to offer you support throughout, including assessing your options when accessing a pension. If you have any questions, please get in touch.

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.

How advisers can best leverage professional connections

This article first appeared in Professional Adviser.

As professionals in a client-facing industry we all know the importance of building fruitful relationships, writes Simon Goldthorpe, who emphasises the benefits of professional connections and sets out how best to go about establishing and maintaining them...

There are countless professionals who can act as introducers to your services, but we'll focus on solicitors and accountants here, as they're often the natural partners for financial advisers.

For example, someone going through a divorce is likely to want both legal guidance and a service to help them plan for their financial future. If they're a business owner, they're probably going to need an accountant's tax advice as well.

Working with other trusted professionals enables you to offer the all-encompassing, holistic service that clients really value.

And finding the right type of professional to complement your business is a three-step process:

  1. Understanding your firm's strengths
    Consider your proposition and what you can genuinely offer connections. What are your areas of specialist expertise? Exactly what type of business are you looking to attract?
  2. Research
    Look for people with specialisms who are compatible with your offering. Read up on the firms that you're considering in order to ensure that they're a good fit for your business and will add value to your service.
  3. Make contact
    There's no substitute for a personal contact, so reach out to your local business community and see if anyone can make an introduction for you. Sometimes the old-fashioned ways work best; the golf club, local business groups or even the school gates can be a great place to make initial contact.

Next, you want to showcase your services and establish a relationship. Some good ways to do this include:

  1. Finding an opportunity for a ‘practice' meeting
    Most professional firms hold regular planning or team meetings. Offer to present at one to explain the benefits of a reciprocal arrangement. Remember that this is not a pitch. Present the facts, be clear on how an agreement benefits them - and their clients - and be prepared to answer any questions.
  2. Presenting for local bodies
    Many professional organisations have local subgroups which hold regional meetings during the year. The organisers of these events typically welcome external speakers - provided that you have something relevant to offer.Ask local contacts or research industry-specific journals to find out what is topical and likely to interest the attendees. Such events are an ideal opportunity to demonstrate your professionalism, knowledge and understanding of the solicitor or accountant's point of view.
  1. Offering seminars for groups of local firms
    If you specialise in subjects of interest to local accountancy or solicitor firms - e.g. business protection, pensions and divorce, or employee benefits - you could host educational seminars or webinars for local professionals. Sessions should cover technical issues, compliance requirements and - mostly importantly - how you can help.
  1. Guest/reciprocal blogging
    Many professional services firms have internal newsletters or regular updates that they send to clients. Some even produce monthly or quarterly magazines.

External voices are often welcome in these publications if you have something relevant and interesting to add.

Offering your insights will demonstrate your skills and knowledge. Plus, returning the favour by featuring connections in your own marketing material will highlight your contacts in complementary areas - and could even open up new business opportunities.

Clients rely on solicitors, accountants and financial advisers at crucial points in their life. From having children to starting a business, every major decision comes with overlapping requirements.

It's often said that recommendations are the best form of advertising, so establishing strategic relationships can generate a stream of good quality clients to suit your business.

Now you have the know-how, it's time to formulate a plan of action for using professional connections to further enhance your service.

How Much Capital It Takes To Grow An IFA Business?

This article first appeared in Professional Adviser

We’ve worked with any number of start-ups over the years, writes IFA firm chairman Simon Goldthorpe, and the one question that always crops up is how much capital is needed to establish a business and grow it into a sustainable, profitable practice.

Without stating the obvious, success isn't always measured by the size of your client book, but instead measures such as the turnover of assets under management.

Sustainable and profitable growth comes when you take on clients that can be serviced effectively at an agreed charging structure. This makes getting your proposition, as well as associated budget, right, absolutely essential.

If you're thinking about going it alone, there are five fundamental areas you must factor into your budget and strategy:

Five Areas of Spending

  1. Office space and technology

Many small IFA practices start at home or in local serviced offices. But if you're looking to grow, you'll need to think about scaling up your premises.

A rule of thumb would be 100-150 square foot per member of staff, so it's worth factoring in any additional employees you'll want to bring on board before reviewing rates in your local area.

Upsizing premises may bring associated technology costs, like upgrading your network, cabling and communication systems. Will you need to invest in landline phones, for example?

  1. Insurance and Professional Costs

It goes without saying that you'll face additional insurance and professional costs as you expand. For example, taking on new advisers will result in additional FCA costs, as will undertaking new types of work, such as defined benefit transfers.

If you're thinking about bringing in any additional services down the line it's always worth checking the associated costs at the start.
  1. Staffing

You'll no doubt need to recruit at some point, be it by hiring new advisers and paraplanners, or taking on support staff to handle the day-to-day running of your business.

Doing it yourself by placing adverts on job boards or in the local media will be cheaper, but first consider if you have the capacity to sift through hundreds of CVs while serving clients.

Using a recruitment agency will save the legwork of finding suitable candidates, but fees will be up to 20% of a candidate's salary.

  1. Marketing

Marketing and brand awareness are key to attracting clients that are the right fit for your business. Tactics sit at all ends of the scale depending on objectives and budget - from targeted sponsored social posts and branded print collateral, to an overhaul of your referral process and developing a high-quality website.

Costs and work involved with vary from strategy to strategy, from a £100 social media campaign to spending £5,000 or more on a sophisticated website.

  1. Outsourcing Tasks

Focus is what helps successfully build a business but, as you move into expansion, it's likely you will be pulled into multiple directions at any one time.

As you begin having to tackle areas outside of your prime skillset, it might be beneficial outsourcing functions such as:

  • Compliance
  • Finance/Accountancy
  • HR and Payroll
  • IT Management
  • Legal
  • Marketing

It goes without saying that providers will vary in terms of experience and price, but this makes it all the more important to shop around to find someone who ticks all your boxes.

So, how much capital do you need to grow?

The truth is that I have seen mediocre firms grow on a massive budget, but I've also seen brilliant IFA businesses grown on a shoestring.

Most important of all is setting a strategy before budgeting for anything, and then carefully reviewing over time to ensure everything remains aligned. The time frame for this will vary from business to business, but 12-18 months would be a good amount of time to understand how well this is working for you.

Always reach out to others in the industry too - joining networks like The Chambers of Commerce will be a good way of finding other business owners who have faced similar challenges. Talking through growth plans and sharing issues will help you refocus and stop you from feeling alone.

Most organisations know that they have to invest in their infrastructure, people and marketing in order to acquire new and better clients. Just how much you spend on those areas depends on your own business and how quickly you want to grow, but being clear on your long term objectives from the outset will ensure all decisions fit with what's right for your business.