5 Tips For Keeping Pensions On Track During The Pandemic

During the market volatility, you may be worried about what it means for your pension. We take a look at five things to keep in mind to ensure your pension and retirement stay on track.

For most of us, pensions are invested with the hopes of delivering returns over the long term and it’s something we plan to pay into over our working lives. But the current pandemic may have impacted on your plans and the current value of your pension.

If you’re worried about the impact of coronavirus on your pension, you’re not alone. Research from Aegon found that many pension savers are anxious about their retirement savings. Perhaps unsurprisingly, older generations that will have more saved into a pension and maybe nearer to retirement are the most concerned. The survey found:

  • A third (33%) of 18 to 34-year-olds checked the performance of their investments in March, amid significant market volatility
  • This compared to 53% of pension savers aged between 55 and 64

This divide was also reflected in who was paying attention to market movements. Some 72% of the older group were doing so, compared to 44% of younger savers. This is despite younger generations being more likely to take this time to make one-off investments, which 28% have done compared to just 10% of those approaching retirement.

For all generations, there is a risk that rash decisions will have a long-term impact. For those still building up their pension savings, this could include halting contributions as worries about job and financial security become a concern. For those accessing their pension, failing to factor in market downturns if taking withdrawals could also have an impact on long-term value.

So, what can you do to keep your pension on track?

  1. Maintain contributions

Given the current economic uncertainty, workers still paying into their pension may consider reducing or pausing their pension contributions. However, due to the effects of compounding even a relatively short break from making pension contributions can have a long-term impact. Keep in mind your own contributions will benefit from tax relief and, if you’re employed, contributions from your employer too. As a result, by halting your own contributions, you’re effectively giving up this ‘free money’.

If you find you can’t continue to make contributions, be sure that you understand the long-term impact and what it could mean for your retirement.

  1. Don’t make rash financial decisions

With bold headlines and falling values, you may be tempted to make adjustments to your investments or make larger withdrawals from your pension to keep it ‘safe’. However, it’s important to keep in mind that a pension is a long-term investment that should have considered the impact short-term volatility would have. Keep this in mind if you’re thinking about making a knee-jerk reaction to the current market movements.

Making rash decisions is something the Association of British Insurers (ABI) has warned about. Yvonne Braun, Director of Policy, Long-Term Savings and Protection at ABI, said: “Rushed financial decisions are rarely the right ones, even at this worrying and uncertain time. Lockdown will not last forever but the decisions you make today about your pension could impact on your standard of living for years to come.

“Now, more than ever, it is important to think longer term, consider your options and seek advice and guidance before making any decisions.”

  1. Review your portfolio

Whilst the media has focused on the fall stocks have experienced, for many pension savers, this isn’t all your portfolio is made up of. Your portfolio is likely to contain a mix of assets, which can help cushion the fall seen on global markets. You may have seen that the FTSE fell 30% due to coronavirus, but it’s unlikely the fall your pension has experienced is this high. In addition, markets have started to recover, they haven’t reached the levels they were at earlier in the year, but the fall isn’t as significant as it was.

If you’re worried about reading headline figures, looking at your own portfolio is likely to show the impact of volatility isn’t as bad as you first imagined. It can help put worries into perspective.

  1. Assess withdrawals if you’re accessing your pension

A dip in the value of pension investments isn’t usually something to worry about if retirement is some way off. If, however, your pension is in drawdown and you’re already making withdrawals, it’s worth assessing the impact these will have. As you’ll need to sell off more assets to receive the same income as you’d have done at the beginning of the year, this can deplete your retirement savings quicker. Where possible, temporarily stopping or reducing withdrawals can help your pension go further. Please contact us if you’re accessing your pension flexibly and want to discuss the rate of withdrawal.

  1. Speak to your financial planner

As your financial planner, we’re here to offer you reassurance and advice when you need it. Speaking to us about pension concerns you may have can help you understand the long-term impact of the current situation and create a solution where one is needed. If you’re worried about your pension, or any other aspect of your finances, 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.


Dividends And Coronavirus: Will Your Income Be Affected?

As businesses have been hit by the coronavirus pandemic, some have decided to cut dividends and regulators are adding pressure for others to follow suit. This may leave a hole in your income if you rely on dividends.

According to reports from The Times, investors have suffered a dividend cut of at least £600 million as some of the UK’s biggest businesses aim to conserve cash during the coronavirus pandemic. A wide range of business sectors has been impacted by the virus and resulting lockdown, leading to profits tumbling. As a result, firms have taken steps to hold cash as a buffer and, in some cases, regulators have stepped in. The UK banking regulator, for example, wants banks to suspend dividends temporarily. Some businesses are also using the government’s scheme to furlough staff, therefore taking money off the taxpayer, leading to questions around whether these firms should continue to make payouts to shareholders.

Why does this affect investors?

If you’re investing in growth stocks with a long-term plan, the recent market volatility isn’t likely to have a significant impact on your goals overall. However, it’s a different story if you rely on dividends to top-up your income.

A dividend is the distribution of a portion of the company’s earnings paid to shareholders. Dividends are managed by the company’s board of directors and must be approved by shareholders through their voting rights. Dividends are typically paid in cash, but can also be issued as shares, and may be issued at regular intervals.

As a result, dividend-paying companies may be used as part of an income investment portfolio. These typically involve investing in well-established companies that no longer need to reinvest the majority of profits back into the business to reach goals. As a result, high growth businesses typically don’t pay out dividends.

For the most part, once a company has established dividends, investors expect this to continue, but that doesn’t mean they will. As even established firms face uncertainty in light of the pandemic and more are choosing to either freeze or suspend dividends in the short term.

Whilst historically dividends have tended to be less volatile than the stock market itself, this doesn’t mean they are a ‘safe’ investment. Investing for income, including dividend-paying companies, still comes with risks that need to be considered.

So, if dividends make up a portion of your income, what can you do?

  1. Reduce outgoings

If your income has been affected, the first thing to do is understand what it means for your finances in the short term. If there is a shortfall in covering essential outgoings, there are currently government-backed schemes in place to support households, including mortgage holidays. Where possible, it may be necessary to reduce outgoings temporarily to match the reduction in income.

  1. Use your emergency fund

Everyone should have a cash emergency fund they can fall back on should their income drop. Ideally, this should be easily accessible and have enough to pay for three to six months of outgoings. Often clients can feel reluctant to access this money they’ve put away for a rainy day, but it’s times like these that you’ve been saving for.

  1. Create an income from other assets

If your income from dividend-paying stocks has fallen, you could build an income stream from other assets that you hold. What’s possible and whether or not it’s the right decision for you will depend on a variety of factors. If this is something you’d like to discuss, please get in touch with us.

  1. Keep your investment plans in mind

If dividends have been reduced or halted altogether, you may be tempted to dump the stocks and look at alternatives. However, keep the bigger picture in mind.

Given the current situation, it’s likely many dividend-paying companies are in a similar position for the time being. A reduction in dividends can be a prudent move and ensure sustainability, therefore protecting your dividend income over the long term. If you’re worried about how secure a firm is, research why the changes to dividends have been made. A statement is often made available on the firm’s website. This may be able to provide you with some reassurance that the changes are temporary.

  1. Speak to us

We’re here to help ease concerns you have about your financial situation and what it means for your plans. This includes a reduction in dividend income. Whether you want to understand what it means in the short term or are considering making investment changes due to this, please get in touch with us.

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.

 


Why You Should Have A Power Of Attorney In Place

Millions of Brits haven’t named a Power of Attorney. It may seem like something you can put off for a while, but it’s something we should all have in place.

A Power of Attorney is a legal document which gives someone you trust the ability to make decisions on your behalf if you’re unable to do so. Thinking about lacking the mental or physical capacity to be independent and make decisions isn’t something anyone wants to do. However, it can happen and having a Power of Attorney in place can provide you with some security if it does happen.

Being unable to make your own decisions is often something we associate with old age and dementia in particular. As a result, naming a Power of Attorney can seem like something that’s fine to put off for a few years or even longer. Yet, accidents and illnesses can strike at any age. It’s important to note that a Power of Attorney can make decisions on your behalf on a temporary basis as well as a permanent one. If you were to recover and in a position to take control of decisions again, you can do so.

You may think that you wouldn’t need someone to act on your behalf, that everything would stay on the course you’ve set out. But even being unable to make decisions for a few months can have a lasting impact. There are two types of Power of Attorney to consider when looking at what would happen if there was no one making decisions on your behalf.

Health and welfare: This relates to areas such as medical care, moving into a care home and life-sustaining treatment. You may have clear ideas about what you’d like to happen should you become ill. A Power of Attorney allows you to discuss these with a loved one who will then be able to make these decisions.

Property and financial affairs: This type of Power of Attorney allows a trusted person to manage your bank, pay bills and collect your pension. It can help ensure your finances remain secure and commitments are met. Even a few months could have an impact if someone isn’t able to access your accounts to settle bills, for example.

It’s also important to note that no one has the automatic right to make decisions on your behalf, this includes spouses and civil partners.

What happens if there’s no Power of Attorney?

If you don’t have a valid Power of Attorney in place, an application would need to be made through the Court of Protection. The Court of Protection can decide if you’re able to make your own decisions, make an order if you lack the mental capacity to make decisions, or appoint a deputy to make decisions on your behalf. The process can be costly and lengthy, delaying decisions that may be important. It’s a process that can be stressful for both you and your loved ones.

4 reasons to have a Power of Attorney

  1. A Power of Attorney should be part of your financial plan when considering ‘what-if’ scenarios and putting in place measures to ensure your security and plans stay on track as much as possible.
  2. It can provide financial security if something were to happen by enabling someone to take control of your finances, including ensuring payments are met and you’re able to access income.
  3. It’s also an opportunity to make sure your care and health wishes are met by discussing them with your trusted Power of Attorney.
  4. The legal document also supports loved ones, without one in place it can be difficult and time consuming to go through the Court of Protection to act on your behalf.

Supporting other estate plans

Naming a Power of Attorney should be done alongside a wider estate plan too. This may include writing or reviewing your will and considering a potential Inheritance Tax bill when you pass away. Putting these pieces in place together can ensure a cohesive plan that is aligned with your wishes. If you’d like to discuss legacy planning and safeguarding your future, please get in touch.

Please note: The Financial Advice Authority does not regulate Power of Attorney, will writing or estate planning.


Checklist: 6 Financial Steps To Take During The Pandemic

If you’ve been putting off reviewing your finances, now is the perfect opportunity to complete some tasks that could help make sure your finances and plans remain on track. With potentially more time on your hands, here are six things to do during the stay at home period.

  1. Review your will and Power of Attorney

It’s estimated that more than half of UK adults don’t have a will in place and even more haven’t established a Power of Attorney. These two legal documents are vital for ensuring your wishes are carried out. Even if you do have both these in place, take some time during lockdown to review them.

A will is the only way to ensure that your wishes are carried out when you pass away. If you already have a will, you can write a new one or add a codicil to make amendments if your wishes have changed. It’s generally a good idea to review your will following life events and every five years.

A Power of Attorney gives someone you trust the power to make decisions on your behalf if you’re unable to do so. Losing the mental or physical capacity to make your own decisions isn’t something anyone wants to think about, but a Power of Attorney is important. There are two types, one covering health and wealth decisions and the other covering finances, you should have both in place.

  1. Update your pension expression of wishes

Did you know your pension benefits aren’t usually covered by your will? Instead, you should complete an expression of wishes with each pension provider, stating who you’d like to benefit from your pension savings if you pass away. As pensions do not form part of your estate for Inheritance Tax purposes and are likely to be one of your largest saving pots, they’re a valuable asset to consider as part of legacy planning.

  1. Find out if you have any ‘lost’ pensions

Over the years you may have accumulated several pensions as you switch jobs. If the pension is relatively small or the employment was from some time ago, it’s easy for pensions to become ‘lost’. Luckily, the government has a service that can help you find lost pensions and start taking them into account when it comes to retirement planning. You can find the contact details for workplace and personal pension schemes here.

  1. Check your National Insurance record

It’s simple to check your National Insurance record, you can do so here. This tracks how many full years of National Insurance you’ve paid, as well as any National Insurance credits you’ve received, such as when taking time out of employment to raise children or care for someone. Why is this important? You need to have 35 qualifying years on your record to be eligible for the full State Pension when you reach retirement age. If you have gaps, it may be possible to pay voluntary contributions. The sooner you know there’s a gap, the better position you’re in to make the right decision for you.

  1. Evaluate financial protection

If you already have financial protection in place, now is a good time to review the policies. As circumstances and priorities change, the policies that are right for us change too.

Whether you have an income protection policy, critical illness cover or life insurance, you should take some time to understand what each policy covers and whether they remain appropriate for you. Life events may mean that your current protection needs to be updated. These events could include starting a family, paying off your mortgage or starting a new job.

If you don’t currently have any sort of financial protection in place, it’s worth considering what would happen if your income suddenly stopped, you were diagnosed with a critical illness or the position your family would be left in if you were to pass away. It’s not something anyone wants to think about, but doing so can help you put steps in place to safeguard your and your family’s future.

  1. Consider making gifts now

The current situation has placed a lot of people under pressure financially. Whilst your finances may be secure, your loved ones may not be in the same position and you may want to provide some support.

If this is the case, making use of the gifting allowance can make sense. Gifts are classed as Potentially Exempt Transfers when given. This means they can be considered part of your estate for Inheritance Tax purposes if you die within seven years of them being received. However, some gifts are considered immediately outside of your estate. This includes the gifting allowance. Each tax year, you can gift up to £3,000 to loved ones, which can be carried forward a year if unused, under this rule.

Other gifts that are immediately exempt from Inheritance Tax include those that are given from your disposable income.

During these times of uncertainty, we know that you may be worried about your finances and long-term plans. We’re still here for you, please get in touch if you have any queries about the above checklist or other aspects of your financial plan.

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 circumstances, tax legislation and regulation which are subject to change in the future.

The Financial Conduct Authority does not regulate will writing or estate planning.

 


Mental Health Awareness Week 2020

The Mental Health Foundation has been raising awareness of Mental Health in the UK since 2001. Their aim is to drive change towards a mentally healthy society for all, and support communities, families and individuals to live mentally healthier lives, with particular focus on those at greatest risk.

This week’s focus is on kindness and the impact of how a little act of kindness can really help to boost our mental health and wellbeing. Helping someone else can lower stress and can cheer up our mood, which allows us in turn to be kinder to ourselves.

To support this event, we wanted to take the opportunity to mention some of the things the teams across the Beaufort Group of Companies have been doing to look after their mental wellbeing during this period of isolation and also how they have been showing a little act of kindness to others.

Beaufort Investment

The Beaufort Investment team has been exploring new ways to relax their minds and ease any lockdown tension.

Emma has been visiting her horse and when safe to do so, has enjoyed a ride taking in the views and wildlife. In an attempt to relieve stress and boredom and to get his children off their electronics, Shane has been building Lego and found mindfulness colouring to be very therapeutic. Shane has shown his kindness to local neighbours by batch cooking some small meals. On the menu so far has been homemade pizza served fresh from his pizza oven, chilli con carne and cottage pie.

Millan has also shown his kindness and generosity by making dozens of Rice Krispies cakes, which he delivered to his other friends in the local area, whilst maintaining social distancing.

Jane and Jon Creasey – Beaufort Financial Fareham

Jane has used the opportunity to add in an exercise DVD each day. She has always been passionate about staying fit (and keeping her asthma as good as it can be). However, it has become progressively harder for Jane to allow time for herself due to family commitments and work/business life. Having the extra time during lockdown (not commuting/running her two girls around) has freed up more time to dedicate to her own wellbeing.

Jane says in terms of kindness, she thinks we are all seeing both small and bigger acts of kindness every day in our homes and communities which she says is lovely to see and hear. Despite how busy her husband, Jon, is working and running his business, he is ensuring that three other families, as well as his own, have the shopping they need, so he has spent the majority of his Saturday’s during lockdown shopping and delivering essentials for others.

 

Gerard O’Donoghue –Beaufort Financial Westerham

After a long day in his home office, Gerard has been enjoying the opportunity to take a leisurely bike ride around Greenwich. His bike is pictured here next to a road sign that he encountered which he feels is appropriate for our current time.

Gerard has also been on hand to help vulnerable neighbours with their shopping and any odd jobs they would otherwise struggle to do themselves. One neighbour that he has helped is a lady in her mid-70’s living with her husband who has dementia. Having dementia means that he does not understand the social distancing rules which Gerard found tough when he came to help them with a log delivery for their open fire. Gerard carried the wood delivery and stacked it in their wood shelter for them in preparation for winter.

In addition, Gerard and his wife sponsor a community project that involves food being bought from suppliers of restaurants and pubs who are currently closed and keen to get rid of stock. The produce is picked, packed, boxed and delivered to those vulnerable or self-isolating within the community. To date over £24,000 has been raised to enable them to buy and deliver food. https://www.youtube.com/watch?v=J1vnlXW2r1E

Beaufort Group

Staff at Beaufort Group have been having regular video calls with their teams to discuss their work or how they are finding life in general during this current period of isolation.

To ease any aches and pains from a different working environment, it appears the most common activities to release those feel good hormones are yoga, dancing, cycling and the couch to 5k. Two of our staff, Niall and Jacqui have been making the most of their free time in their home gyms, which have historically sat gathering dust or used to hang clothes.

Dave

Dave has been cooking alfresco style, inspired by Gordon, Gino and Fred. He has taken part in a slumber Yin Yoga and recently completed week 5 of the couch to 5K, running for 20 minutes. He says he is taking it rather seriously now and has bought himself a running watch. Dave’s determination inspired two other colleagues to start the couch to 5k, which they say is going well so far. Dave has dedicated time to something new and is learning Duolingo Spanish (in a Yorkshire accent) …. We can’t wait to hear that!

Tony

Tony and his wife showed their small act of kindness during VE day when anyone passing their house could help themselves to a free VE day cake, whilst also looking at some WW2 bits and bobs. His wife also laid out the food ration for one week which took a lot of people by surprise.

 

 

Lyn

The main focus of this year’s Mental Health Awareness Week is kindness and someone who has gone over and above an act of kindness is Lyn. Lyn has successfully registered as an NHS volunteer with the Royal Voluntary Service and has been providing short term telephone support to individuals in self-isolation. To date, Lyn has spent 53 hours of her time volunteering and says she is amazed at how many people within her community are willing to help those in need.

Wendy

Working from home and home schooling her 5-year-old son has been extremely tough and challenging at times and she could not have got through without the support network from her school mum friends. Wendy has been overwhelmed with the kindness and generosity of her friends as they have helped with the obstacles faced with being a single parent and not being able to shop alone. Her friends have been on hand to help with shopping and school print outs and sneak in Easter eggs which she hid in the garden at Easter for her son to find. She said it has also been uplifting to see a friendly face at a distance and has been extremely grateful to be able to connect with her friends using face time and zoom.

Simon

Simon is proud to have become a grandfather twice during this period of isolation. He is pictured here holding his one-month old granddaughter.

Congratulations to Simon and also to Clive who was busy over the Easter weekend welcoming his 2nd son into the world.


Bank Of England Interest Rate Cut: What Does It Mean For Finances?

Over the last few months, speculation that the Bank of England would increase its base interest rate has been mounting. However, the impact of Covid-19 has changed that, leading to the central bank making two cuts to the interest rate in quick succession.

Coinciding with the 2020 Budget, the base rate was cut from 0.75%, where it’s been since August 2018, to 0.25% on Wednesday 11th March. Just a week later, the rate was cut again on Thursday 19th March to just 0.1%. The latest cut represents a historic low, and it could have an impact on your finances.

The Bank of England base rate is the official borrowing rate of the central bank, affecting what it charges other banks and lenders when they borrow money. This then has a knock-on effect on personal finances.

Why has the Bank of England cut interest rates?

The rate cuts have been in direct response to the coronavirus pandemic.

As the virus has spread globally, it’s had a significant impact on economies. In the UK, non-key workers have been urged to work from home, pubs and other leisure facilities have been temporarily ordered to close, and many other businesses have taken the decisions to either reduce operations or suspend them. These are steps that are hoped to stem the spread and relieve pressure on the healthcare system but come at an economic cost.

The latest interest rate cut has increased its quantitative easing stimulus package and pumped more money into the UK economy. The aim of this is to calm the financial markets, which have experienced volatility over the last few weeks, and stabilise the economy.

In a statement, the Bank of England said: “Over recent days, and in common with a number of other advanced economy bond markets, conditions in the UK gilt markets have deteriorated as investors sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves. As a consequence, the UK and global financial conditions have tightened.”

The Monetary Policy Committee, which is responsible for setting the base rate, voted unanimously to increase the Bank of England’s holding of UK government bonds and sterling non-financial-grade corporate bonds by £200 billion, bringing the total to £645 billion.

But what does this mean for your finances? The impact will depend on whether you’re looking at borrowing or saving.

Borrowers

For some borrowers, the lower interest rate is good news. This is due to the cut lowering the cost of borrowing.

The area where you’re likely to see the most immediate impact is your mortgage if you have a tracker or variable rate one. A tracker mortgage, for example, tracks the Bank of England base rate, so your mortgage repayments should drop before your next payment. A variable mortgage tracks your lender’s interest rate, this will follow the trend of the Bank of England, and most borrowers will benefit from the full 0.65% drop, but it does vary. It’s worth checking with your lender about how your mortgage repayments will change if they haven’t already contacted you.

Unfortunately, those with a fixed-rate mortgage won’t benefit from the rate cut.

Savers

The years since the financial crisis have been difficult for savers. Low-interest rates over the last decade have meant savings aren’t working as hard as they may have done before 2008.

Interest rates on savings accounts are now likely to fall even further. When you factor in the pace of inflation, this means that many savings are likely to be losing value in real terms. This has a particular effect if you’re saving for medium and long-term goals. Inflation rising by a couple of percentage points each year can have a large impact when you assess the impact over ten or 20 years, for instance.

If you have a fixed-rate account, your interest rate and savings will be protected for the time being. However, if you have savings in other types of accounts, it’s likely the amount they earn will fall eventually. Banks must give existing customers at least two months’ notice of a cut, for current accounts and instant-access savings accounts.

For long-term saving goals, investing can help savings match the pace of inflation, maintaining your spending power. However, it’s important to note that investment values can fall and experience volatility, with the pandemic having an impact on markets too. As a result, it’s important to assess your financial goals and risk profile before making any investment decisions.

If you’re unsure what the base rate change means for you, please contact us. We’re here to help you adjust financial plans and goals as circumstances change, whether they’re within your control or not.

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 Does Coronavirus Mean For My Pension And Retirement?

As the coronavirus pandemic continues to dominate world headlines, here’s what it might mean for your pension and retirement plans.

The pandemic has created uncertainty in economies around the globe. As a result, stock markets have experienced shocks and over the last few weeks have seen significant falls. Fears of a recession following the pandemic have sparked even more concern. It’s natural to be worried about what the impact on financial markets means for your future. Understanding what the change means, and where adjustments may need to be made, can help you plan for retirement with confidence.

What impact has coronavirus had on pensions?

For most people, pensions will be invested. This gives your pension an opportunity to grow over the several decades you’re likely to be paying into a pension. However, it does mean your retirement savings are exposed to market volatility. In the last few weeks, this will mean pension values are likely to have fallen.

The full impact will depend on where your pension is invested. It’s important to keep in mind that a pension doesn’t just hold stocks and shares, other assets are used to create balanced portfolios. So, whilst news updates may say the stock market has fallen 20%, it’s unlikely your pension will have suffered a fall on the same scale.

If you’re worried about your pension, it’s worth checking the value. However, keep in mind that short-term volatility is to be expected at the best of times. Keep the bigger picture in mind and look at the value of your pension with your retirement plans in mind.

The impact coronavirus will have on retirement plans will depend on what stage you’re at.

  1. Your retirement is still several years away

If retirement is still some way off, the current market activity shouldn’t affect your retirement plans.

You should always invest with a long-term goal in mind, this provides an opportunity for peaks and troughs to smooth out to deliver gradual investment gains when you look at the bigger picture. Whilst past performance isn’t a reliable indicator of the future, previous market corrections and crashes have always been followed by a period of recovery.

So, whilst it’s natural to worry if your pension value has fallen, stick with your long-term plan.

  1. You hope to retire soon

If retirement is nearing, it’s natural to worry about your pension in any circumstances. It’s a life milestone that means we often have to change the way we view income and finances. As a result, a stock market crash just before the date can be worrisome.

The first thing to do here is to put the stock market falls into perspective. You’ve likely been saving into a pension for many decades. No one likes investment values to fall, but when you look at it in comparison to the gains made, you’ve probably done well financially.

You also need to look at your pension value in the context of your retirement plans: Will the current value of your pension provide you with the income needed throughout retirement? If not, what is the shortfall?

This can be difficult to weigh up, as there are numerous factors to take into consideration. Working with a financial planner can help you understand how the pension figure translates to a retirement lifestyle. If there is a shortfall, there are often steps you can take to bridge the gap, from delaying retirement to using other assets.

It’s also worth noting that, depending on your goals and desired retirement lifestyle, your adviser may have ‘lifestyled’ your pension already. This is where your savings are switched to a lower risk profile that aims to preserve the savings you already have as you near retirement. If this is the case, it’s likely the impact on your pension is lower as you’ll be less exposed.

  1. You’re already retired

If you’re already retired and choose to access your pension flexibly using Flexi-Access Drawdown, the current activity may have an impact. This is because your pension savings remain invested with the goal of delivering returns whilst you’re retired. However, the flip side of this is that you’re exposed to market volatility.

The important thing to recognise here is how your withdrawals will have an impact in the long term. Making withdrawals whilst the market is low means you must sell more units to secure the same income. This can deplete your retirement savings quicker than expected. As a result, it’s worth reviewing how much you’re withdrawing.

If you’re able to reduce withdrawals or temporarily pause them, this can help to minimise the impact on your pension savings in the long term. You may have other assets, such as cash savings, that can be used to tide you over until the markets begin to recover. If you find yourself in this situation, please contact us. There are often solutions that will enable you to maintain your lifestyle and future.

Having confidence in your retirement aspirations

Whether you’re already retired or you’re still working towards that goal, it’s important to have confidence in your plans. This includes understanding the lifestyle your pension will provide and how market shocks would have an impact over the short and long term. This is where financial planning can help. If the recent volatility means you have concerns about pension investments, we’re here to help you. In some cases, it may simply be understanding how pensions will grow over the next ten years, in others, adjustments may be necessary, such as reassessing your risk profile or increasing contributions. Please contact us to discuss your pension and retirement goals.

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.

 


Is A SIPP The Right Investment Product For You?

The Self-Invested Personal Pension (SIPP) was first introduced over 30 years ago and large numbers of investors have opted for one since. Their greater flexibility and the amount of control they offer has led to them being branded ‘DIY pensions’ in some quarters.

If you’re confident about investing in the stock market and have a sizeable pension fund, or you’re looking to use a pension product to invest in commercial property, then a SIPP may well be the right option for you.

But they’re not for everyone. Greater control means greater responsibility and a potentially increased risk.

What is a SIPP?

A SIPP is a Self-Invested Personal Pension, open to anyone who meets the eligibility requirements of their chosen SIPP provider.

A minimum fund size may apply, and this might be comparatively high. This is because the costs of administering a SIPP can be larger than for a standard personal pension, due in part to the flexibility and control a SIPP offers.

A SIPP can give you greater control because you can choose from a wider range of investment options but you can also opt for a managed portfolio, based on your risk profile.

You can also use a SIPP to invest in commercial property.

Still, a SIPP is unlikely to be right for first-time or beginner investors.

Why might you choose a SIPP?

SIPPS can be a great investment choice in some circumstances and for a certain type of investor. You might choose to open a SIPP if:

  • You have experience of investing

A SIPP gives you control over the investments you choose but this means greater responsibility too.

You’ll likely have complete flexibility and control over your investment portfolio, with a wide range of funds to choose from and different asset classes available.

This might increase the potential for investment growth but also means you’ll need to have a very definite understanding of your attitude to risk.

Your SIPP provider might offer a range of bespoke portfolios, tailored to different risk profiles.

  • Your pension fund is large or you intend to invest a large amount

SIPPs can be more ‘hands-on’ for both you and your SIPP provider. This can lead to higher charges than with other pension products.

If your pot is large, you may be able to soak up these additional costs (your SIPP provider may have a limit on the minimum investment). Even if your initial investment is low, if you intend to significantly increase contributions once the SIPP is in place, this may offset the charges.

  • You’re looking to hold commercial property in your SIPP

Commercial property could include business premises, factories or offices, and there are two main ways that these can be held in a SIPP.

  1. Use your pension fund to purchase the property, placing the premises directly in the SIPP
  2. Use equity release on a property you already own to effectively exchange a pre-existing pension pot for the property. This approach is considered extremely high risk and will only be appropriate in limited circumstances.

Holding commercial property in a SIPP has benefits, including:

  • The rent you receive is paid directly into the SIPP, rather than counting as personal income, and therefore isn’t liable to Income Tax
  • You won't pay any Capital Gains Tax on the sale of the property – because the property is held in the SIPP and any gains belong to the pension
  • You can also use up to 50% of the SIPP value as a loan to purchase your commercial property, held against the value of the SIPP. Your personal (and professional) finances are protected if the property is repossessed.

When wouldn’t you choose a SIPP?

A SIPP isn’t a mass-market product but was instead intended for a very selective market. Its move into the mass-market has led to some people being invested in SIPPS who shouldn’t be – paying higher fees when they would be better off in a personal pension.

Consider an alternative to a SIPP if:

  • Your pension pot is relatively small

SIPPs can have high charges compared to other pension products. Whereas a high fund value can help to soak up these charges, if you have a relatively small fund, you could see a large portion of it eaten up.

Consider whether other pension products might be right for you and if you’re still unsure, speak to us.

  • You are a first-time, or relatively inexperienced, investor

SIPPs are complex products that offer a lot of choices.

They also offer the potential for increased risk. Although they might be suitable for experienced investors, consider other products if you are new to investing or still relatively inexperienced.

  • You are risk-averse

The control and flexibility that SIPPs offer is great if you’re an experienced investor, but less so if you are new to investing. If you are risk-averse there are other pension products available – get in touch with us if you’d like to discuss your investment options.

 


Coronavirus, Life Insurance And Critical Illness Cover: What Will And Won’t Pay Out?

With more than 1.8 million confirmed cases of coronavirus worldwide and fears that up 80% of the UK population will fall ill as a result of the global pandemic, many people are looking to their insurance providers to clarify what will and won’t be covered.

If you have not received any clarification directly from your insurer, then here are a few facts that may help you understand your current position.

What does life insurance cover?

Whilst there are many different types of life insurance, strictly speaking, they should all do one important job – pay out if you die during the term of the policy. This relies on you having kept up to date with your premiums, answered all the application questions honestly, and, if you have a term life insurance policy, that you are within the covered period.

All life insurance policies will contain some special circumstances under which they will not pay. These, however, will vary from policy to policy. To be sure exactly which exemptions apply to your policy, you must take a detailed read through your policy documents or contact your provider for clarification. Some, for example, will not pay out if you are deemed culpable for your own death in some way.

However, the life insurance companies who have so far issued statements have all made it clear that they will be honouring all policies where death occurs due to the coronavirus pandemic.

What do the life insurance companies say about coronavirus?

In common with other major insurance providers, Zurich say that if a customer holding a Zurich life insurance policy dies of coronavirus, they will pay out following their “normal claims process and assessment”.

Aviva are also clear they will be paying out.

“With the news that Covid-19, more commonly known as coronavirus, is spreading across the UK we want to give you clarification around our claims and underwriting position.

We're continuing to pay all valid claims and committed to giving you access to valuable protection insurance. We remain a market-leading protection insurer for claim paid amounts.”

Vitality state that “Covid-19 or any other infectious disease which results in the plan holder dying, will be covered.” Beagle Street have stated the same.

While some insurers have not yet issued any statement regarding the Covid-19 outbreak, those who have make it clear that there is no pandemic or epidemic exclusion for life insurance.

This means if you have a current life insurance policy and you have continued to pay your premiums, your beneficiaries should receive a pay out if you die from Covid-19 or related complications.

What about Critical Illness cover?

When it comes to Critical Illness cover, however, things become a bit less straightforward.

Generally, insurers have been saying that they will not pay out on Critical Illness cover as a result of coronavirus because it is not a specified illness under the terms of their policy.

They also state that most people who contract it go on to make a full recovery which is, thankfully, true. However, around 5% of those infected face critical illness as a result of contracting the virus, including respiratory failure, septic shock and multiple organ failure.

Additionally, medical professionals are now saying that some of those who are infected with Covid-19 and who do not die from it, do suffer from what are most likely to be lasting lung conditions. Under these circumstances, you may be able to make a claim, but this will depend on the exact wording of your policy.

Zurich, in answer to enquiries on this question, have stated that:

“Coronavirus is not a specified ‘Critical Illness’ on Zurich’s policy.

Under our ‘Respiratory Failure – Of Specified Severity’ definition, it is possible a claim might be presented but the opinion of our Claims and Medical Officer is that the coronavirus is unlikely to produce the permanent symptoms or impairment to lung function required to meet this definition.

We will consider any such claims presented on the basis of the individual circumstances”

In response to enquiries from members of the public who are understandably confused and worried, the Association of British Insurers (ABI) have attempted to bring some clarity.

Their advice is that customers should expect insurers to treat any claim for coronavirus in the same way they would treat other claims for Critical Illness cover. They also advise customers to note that Critical Illness cover is only paid out where it falls under the specific set of criteria laid down in the ABI Guide to Minimum Standards for Critical Illness Cover.

All Critical Illness policies are required under these minimum requirements to cover heart attack, stroke and cancer, but beyond that, policies can and do vary. It may be that one policy covers for coma, respiratory failure and kidney failure – which may come about in the most serious Covid-19 cases – while others will not.

In other words, the only way to be sure what your Critical Illness policy will cover you or your loved ones for is to read your policy terms and conditions or check directly with your insurer. It may be that while coronavirus infection itself is not a covered condition on any Critical Illness policy, the complications that can arise from it, are.

Contacting your insurer

If you have any further questions about your policy cover, then you should in the first instance consult your insurer. Be warned, however, that their phone lines may be very busy at the moment, so it may be better to check their website for information. Most providers have updated their websites to include answers to specific questions about Covid-19 for worried customers.

The ABI provides some reassurance that while this is a particularly difficult time for claimants and insurers alike, they are doing everything in their power to keep their operations running as efficiently as possible and to offer clear and up-to-date information to their customers.

If you have any questions about the life or Critical Illness cover you have in place, please get in touch with us.

Please note

All details are correct as of 24th March 2020 and are taken from each insurance company’s website.

 


Budget 2020

We outline below the three changes that IFAs should make their clients aware of.

Pension Annual Allowance

The Chancellor, Rishi Sunak announced in his Budget Speech - "To significantly reduce the amount of people the tapered annual allowance affects, I am increasing the taper threshold by £90,000 removing anyone with income below £200,000. Based on their vital work for the NHS that will take around 98% consultants and 96% of GPs out of the taper altogether."

He also went on to add that for earners above £300,000 per annum, the reduced annual allowance would fall from £10,000 to £4,000. However, the exact mechanics of this have not been explained. Currently, earners over £150,000 have their annual allowance reduced by £1 for every £2 they earn over £150,000, up to a maximum of £210,000 at which point the annual allowance has fallen on a 2 for 1 basis by £30,000 to £10,000.

Both the £150,000 and £210,000 threshold have been increased by £90,000 to £240,000 and £300,000. If the 2 for 1 reduction basis still applies, the Annual Allowance when earnings reach £300,000 would still be £10,000, so it would appear that the Annual Allowance will drop by a further £6,000 if income exceeds £300,000.

Many commentators feel that the Chancellor missed an opportunity to simplify pension tax relief by removing the Tapered Annual Allowance altogether. However, it is more likely that this move was driven by expediency to address the immediate NHS issues, especially against a background of Covid-19, and that a much more fundamental review of pension tax relief and allowances is still a future probability.

Lifetime Allowance

As expected, the Lifetime Allowance, the maximum amount someone can accrue in registered pension schemes over their lifetime without incurring an additional tax charge, was increased in line with CPI, to £1,073,100.

ISAs

The annual subscription limit for Individual Savings Account (ISA) for 2020-21 will remain unchanged at £20,000.

However, the Junior ISA and Child Trust Fund annual subscription limit is to be increased from £4,368 to £9,000. This provides an opportunity for those who wish to save on behalf of their children, to increase the amount they can invest on an annual basis.


Financial Wellbeing: How Do You Score?

Ministers have launched a financial wellbeing scheme in a bid to boost saving across the nation. We look at five key areas for improving your financial wellbeing. How do your finances stack up?

The most recent figures from the Office for National Statistics measuring household debt cover from April 2016 to March 2018. In total, household debt was £1.28 trillion, with 91% of this being attributed to property debt such as a mortgage or Equity Release product. Not counting property debt, the mean household has debt of £9,400, a 9% increase when compared to the period two years earlier.

As debt has risen, many families have found it harder to save too. Research indicated that 11.5 million people have less than £100 of savings to fall back on. Nine million also use credit cards and payday loans to meet essential outgoings. It could leave these individuals financially vulnerable should they experience a financial shock or unexpected bills. Even a small expense can have long-term implications if you're forced to borrow to cover it.

Why have savings decreased?

Over the last decade since the 2008 financial crisis, many workers have found their outgoings have continued to increase in line with inflation. However, wages have been stagnant, falling behind the rising cost of expenses.

The government now plans to turn Britain into a nation of savers by 2030 and cut the number of households relying on credit cards for day-to-day expenses. It also aims to extend financial education in schools, reaching 6.8 million children, compared to the current 4.8 million. Whilst the target is a positive step for improving financial wellbeing, there's little information available on how this will be achieved.

What is financial wellbeing?

Wellbeing is something of a trend at the moment. More people than ever are looking at ways they can improve their overall wellbeing, defined as the 'state of being comfortable, healthy or happy'.

Whilst your mental and physical health is important, you shouldn't neglect your financial health. After all, financial worries can cause stress, whilst financial independence can give you an opportunity to focus on what makes you happy. Financial wellbeing is about having a sense of security and the freedom to make choices that allow you to enjoy life.

So, how does your financial wellbeing score?

  1. Do you have an emergency fund?

First, how would you cope with a financial shock? Even the best-laid plans can run off course for a variety of reasons. As a result, having an emergency fund you can fall back on is essential for financial wellbeing.

This gives you some financial protection should you face an unexpected bill or if you're unable to work for a period of time. Ideally, you should have between three and six months of outgoings in a readily accessible account when you need it. An emergency fund is the foundation of financial wellbeing and can give you confidence.

  1. Are you comfortable with your income and outgoings?

Budgeting is one of the basics of planning your finances. If you're not comfortable with how your books are balancing, it'll affect your financial wellbeing. Managing outgoings in line with your income is key for the other factors on this list too, ensuring you have some spare money to put to one side to meet your other goals, both short and long term.

If you're worried about your day-to-day expenses, it's worth spending some time looking at where your money is going. You may find that there are areas where you can cut back or that you're actually in a better position than you thought.

  1. Can you manage your current debt level?

At points in your life, debt is likely. It's not all 'bad' though. As the Office for National Statistics highlight, over 90% of the debt in the UK is related to property. For many of us, a mortgage is essential for getting on the property ladder. On top of this, there may be times that you need to take out a loan or access other forms of credit.

Credit can be incredibly useful and at times the best option for you. The key here is to understand your commitments and ensure you can meet them. Effectively managing debt is core to maintaining positive financial wellbeing.

  1. Are you saving for the long term?

Whilst the government scheme focuses on building up a savings pot for the short- and medium-term, you should be looking further ahead too. Are you saving enough for retirement, for example?

Retirement might be something you've thought little about if you're still in work. But it's a milestone that you should be preparing for throughout your working life. Knowing that you've been diligently putting money away for your life after work can improve your financial wellbeing when you look at the bigger picture.

If you're already retired, it's important to understand how your income may change over the coming years and what you can do to maintain your lifestyle.

  1. Do you feel confident in your financial decisions?

Finally, you should feel confident in the financial steps you're taking and what this means for your future.

When you undertake wellbeing exercises, it's to enhance your happiness and fulfilment both now and in the future. It's the same with financial wellbeing. Getting to grips with your money and ensuring your accounts are in good health can boost your prospects and how comfortable you feel.

If you're worried about money, it can impact on many other areas of your life. For your overall wellbeing, it's essential you feel confident. This is an area of financial planning we can help with. Working with an expert can help you proceed with financial decisions with confidence, as well as gaining an understanding of how your wealth will change over time.

How many of the above did you answer 'yes' to? If you have any gaps in your financial wellbeing or questions about your financial plans, find your local Beaufort Financial adviser.


Why Financial Planning Is Important For Generation X

If you're part of Generation X, it's the perfect time to start planning your finances to ensure you're on track for meeting goals in the short and long term.

Generation X is likely to be facing big life and financial decisions. Yet, only a small portion is working with a financial adviser to ensure their future is secure.

A nationwide study found that just 8% of those aged between 39 and 54 has spoken with an independent financial adviser in the last year. This is despite many within this age group approaching financial milestones. If you've been putting off getting to grips with your financial future, it's not too late.

Setting out your life goals

The first thing to do is think about what your life goals are in the short, medium and long term.

These goals should be the driving force behind your financial plan. Whilst you're still working, it can seem like retirement or planning to help children get on the property ladder is a long way off, but these long-term goals are just as important as the ones just around the corner. By setting them out now, you're more likely to achieve them.

Remember, the goals you set out now aren't set in stone. You may simply change your mind or factors outside your control may force you to evaluate. Regularly going back to your aspirations, and how you will achieve them, is just as crucial as the first step.

  1. Making the most of your earnings

As you reach your 40s and 50s, your income is likely to be higher than it was in the past. So, how do you make the most of this?

Should you overpay on your mortgage? Or should you start building an investment portfolio? Perhaps, you should increase your pension contributions?

There's no single right answer here. Your decisions should come back to your lifestyle goals. However, taking steps to understand the long-term implications of the financial decisions you make now can help you pick the right path for your aspirations and current financial situation. For some, reducing mortgage debt will help them free up their income in later life in order to retire early. For others, it will make more sense to invest their capital to build up a flexible income in the future.

  1. Planning for retirement

According to the research the average Generation X worker has £159,837 in their pensions and contributes just over £200 per month.

Whilst retirement may still seem a long way off, it pays to start thinking about the lifestyle you want and whether it's achievable based on current pension projections. Just 20% of Generation X plan to access their pension within the next five years. The findings suggest that most have an opportunity to fill potential gaps should they find aspirations and reality aren't aligned. The sooner you know there's a gap in your pension, the greater the chance you have to bridge it.

Worryingly, 48% of women and 34% of men had never heard of Pension Freedoms, and 30% have heard of them but don't understand what they mean for retirement. These pension reforms were brought in five years ago and give you far more freedom in how you access your pensions, but also bring additional responsibility too.

It's important you understand your options; what is right for someone else may not be appropriate for you. The decisions you make at retirement could affect the rest of your life. Please contact us to understand how your pensions savings can be used to create a retirement income.

  1. Providing for the next generation

At this stage in your life, you may be considering how you can financially help the next generation. You may have children or even grandchildren that you want to provide for.

Balancing your financial needs with your desire to give a helping hand can be difficult but it is possible to balance the two. For example, you may want to pay for school fees out of your regular income or start building up a nest egg that can be used for a first home deposit in the future. Setting out these goals can help you achieve them. The best course of action will depend on many factors; including your aspirations for helping loved ones but this is an area where we can provide support. We take the time to understand what your hopes are, so we can set out the right path for you. When planning for the next generation this could include:

  • Contributing to a Junior ISA
  • Gifting lump sums
  • Providing gifts from your income
  • Writing a will and estate planning

If you're part of Generation X and would like to review your finances with a financial planner, please get in touch with us. We'll help you see how the steps you're taking now will impact your future security and ability to achieve goals.

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 benefit 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.

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's The Purpose of Your Retirement?

Having a purpose can improve your wellbeing, it's no different when you reach retirement. What do you hope to achieve as you move into retirement?

Purpose in life gives you a sense of direction and provides meaning. Having a purpose can improve your wellbeing throughout life, and it's no different when you're in retirement. Understanding what your purpose is can make the next chapter of your life more fulfilling.

One of the key elements of financial planning is marrying together your financial means with your goals.

Why is purpose so important at retirement? For many of us, our working life plays a central role in our purpose. The sense of pride you get when working or as you climb the career ladder can mean work becomes a way that we define ourselves. When we meet someone new, one of the first questions we usually ask is; what do you do?

We don't mean how do you fill your free time with hobbies but how you make a living. As a result, our purpose in life and careers are often entwined for decades. When you retire, you can feel like you've lost your sense of purpose whilst you establish new goals and aspirations.

Once you reach retirement, you'll probably have far more free time on your hands than you've ever had before. That means you need to ask yourself; what makes me happy?

Defining your purpose

When we think about retirement, it's often what we'll be getting away from that we focus on. Maybe you're looking forward to avoiding rush hour traffic or tight deadlines. But by focussing on what you're retiring to, you can start to think about your purpose.

There's no one-size-fits-all purpose once you give up work. With more free time, you can start to focus on those areas that may have been put on the back burner because your career took up precious time. For some it could include:

  • Spending time on your passion projects
  • Devoting more time to family and friends
  • Getting more involved in social activities and clubs
  • Visiting new destinations
  • Improving skills or learning something new
  • Donating time or skills to charity
  • Starting a business

For many people, their purpose in retirement is likely to be a combination of several different priorities. Clearly outlining what's important to you in retirement can help you create plans and objectives, providing a sense of direction.

When imagining your ideal retirement, it's easy to focus on the big things. Perhaps a once in a lifetime trip springs to mind. But the day-to-day is just as important; how will you fill your mornings, afternoons and evenings? The plans to spend weekends exploring the local area with grandchildren, afternoons honing your skills on the piano or evenings at a class with friends can help give you a sense of purpose.

Retirement is an opportunity to review what you want and your goals for the next stage of your life. After decades working to save for retirement, it's well-deserved.

Funding your purpose

Whilst your purpose and goals should be at the centre of your retirement plans, money will clearly play a role.

As a result, it's important to assess your purpose with your pension and other provisions in mind. Having confidence in your finances means you're free to focus on what's driving you and gives your life meaning. Putting together a financial plan might seem like a dull task but it's one that can make your retirement years more enjoyable and relaxing.

After meeting with us, many people find they're in a better financial position than they thought. It's a step that gives them the confidence to pursue dreams without having to worry about whether they'll run out of money in 20 years' time. For those that find there's a gap in their finances, there are often solutions or compromises that can be made to ensure they still have a meaningful and financially secure retirement.

Please call us to discuss your purpose for retirement and how your finances can help you achieve it.

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.


4 Ways You Can Efficiently Pass Wealth On To The Next Generation

If you plan to pass wealth on to children or grandchildren, how to do so efficiently should be a consideration. It could mean more ends up in the hands of your loved ones.

Do you intend to pass on wealth to loved ones? If you want to help children and grandchildren become more financially secure, you need to consider more than just the sum you'll be giving them. Tax rules may mean you need to think carefully about how you do so, as well as the impact it will have on you.

If you want to pass on a portion of your wealth to loved ones, you essentially have two options: do it during your lifetime or as an inheritance.

There are pros and cons to both these options. Passing on your wealth now means you get to see the impact the money has and, depending on the circumstances of your loved ones, it may have a bigger positive effect on their life. However, on the other hand, it may diminish their inheritance and you'll need to think carefully about how it affects your wealth over the long term.

Whatever option you choose, efficiency should be considered. After all, you want as much of your gift to go to your loved ones.

  1. Use your gifting allowance

When you give a gift, you may think it's considered out of your estate for Inheritance Tax purposes. However, this isn't always the case. Some gifts may still be considered part of your estate for up to seven years and could be liable for tax as a result.

Crucially, there are some exemptions that mean gifts are immediately outside of your estate for Inheritance Tax purposes. This includes the annual gifting allowance of £3,000. If you want to give money to loved ones now, you should make use of this. It can be carried forward by a year, so if you didn't use your allowance last tax year, you could efficiently give £6,000 this year.

  1. Write a will

If you're hoping to leave an inheritance to your loved ones, writing a will should be the first thing you do. Even if you already have a will in place, it may be worth reviewing it.

Having a valid will is the only way to ensure that your wishes are carried out. Despite this, more than half of British adults have not made a will. Not doing so would mean your assets are distributed according to Intestate Rules, which could be vastly different from your wishes. A will may also present an opportunity to mitigate tax.

Ideally, you should review your will every five years and after big life events, such as new grandchildren arriving, marriage or divorce.

  1. Use a trust

Another way to potentially take a portion of your wealth out of your estate is through using a trust. A trust can allow you to pass on assets or money to beneficiaries with one or more people, or even a company taking control. It's an arrangement that can be particularly useful if you want to pass gifts on to children or vulnerable people.

There are several different types of trust and some are subject to their own tax regimes, so you need to fully explore your options before deciding to set up a trust.

Trusts can be complicated and once you've made a decision, it may be irreversible. As a result, it's important that you seek both financial and legal advice before proceeding. Please contact us to discuss if using a trust is an option that is appropriate for you.

  1. Remember your pension

Pensions can provide you with an income throughout retirement. But they may also present you with a chance to pass wealth to loved ones after you've passed away.

Money taken out of your pension will be considered part of your estate and, therefore, potentially liable for Inheritance Tax. However, money that remains in your pension can be passed on efficiently.

If you die before the age of 75, the money within your pension will not be taxed at all if it's accessed within two years. After the age of 75, your beneficiary will be charged Income Tax, which could be far less than Inheritance Tax depending on their personal income.

If you want to leave your pension to a loved one, it's important to note your pension doesn't form part of your estate. As a result, it won't be covered by your will. You should contact your pension provider to complete an 'expression of wishes' to let them know what you'd like to happen.

These four ways to pass money on efficiently aren't the only options. Depending on your circumstances and goals, there may be other options that are more suitable. Please contact us to discuss your personal needs.

What impact will the gift have on you?

Whilst passing on wealth, tax efficiency is important, it's also crucial that you measure the impact it could have on your plans and future. For instance, would taking a lump sum out of your wealth now to give as a gift potentially leave you financially vulnerable in later years? Would a planned inheritance be at risk if you were to need long-term care?

You can't know what's around the corner but by making gifting part of your financial plan, you can help ensure everything stays on track. Please contact us to discuss how you'd like to financially support loved ones. We'll help build a financial plan that reflects this, as well as your other goals.

Please note: The Financial Conduct Authority (FCA) does not regulate will writing, estate or tax planning.


Four quick networking wins to help grow your business

This article first appeared in Professional Adviser.

In the popular animated television show Rick & Morty, there’s an episode where the Rick, the mad-cap protagonist, finds himself transported to another universe and must dance for a group of aliens to prove himself and ensure survival.

You may be asking yourself what industry relevance this has, but it’s not too dissimilar to what financial advisers have to do on a daily basis to justify their existence and keep themselves in business.

Networking plays an important role here.

For many, the idea of mingling with strangers is their worst nightmare. However, it’s a crucial means of marketing your business, so it’s important to find those activities that work for you.

If you’re smart about it, there are quick and inexpensive ways of generating referrals and winning new business. For example:

Getting involved with local organisations

For many advisers, the majority of business comes via word-of-mouth referrals, meaning those who aren’t investing time to meet and interact with others in their field or local area may be missing out on valuable opportunities to forge new partnerships.

Don’t rule anything out. Networking can happen anywhere, from your local tennis club’s annual social to a formal Chamber of Commerce dinner. By looking online or on social media, you may also find breakfast clubs in your locality where professionals from any number of disciplines meet to exchange ideas. If you’re lucky, you may come across a local solicitor looking for a trusted local financial planner to refer their clients to.

Speak at industry events

As a financial adviser, you possess sought after knowledge, technical skill and experience. Why not share these at an industry event? This will not only pitch you as an authority in your sector, but you will almost certainly meet new contacts.

From Chamber of Commerce meetings, to specialist conferences and local societies run by professional bodies who want to promote knowledge sharing at a local level, there are plenty of opportunities to get involved. Commit to speaking, hand out your contact details and follow-up to offer support with clients who may have issues your services could help solve.

Host roadshows or seminars

Hosting your own events is a good way of highlighting specific areas of expertise to potential introducers – and doesn’t have to cost the earth. If you are a specialist in providing advice to divorcees, for example, you could invite local accountants and solicitors to a small seminar, to run them through what steps people should take. That way you will be front of mind when their clients go through a similar experience.

Professionals will benefit from your knowledge and technical advice and can also use the session as part of their Continuing Professional Development. Hosting events such as this will also help build your position as a go-to in that area, in turn, potentially leading to these professionals getting in touch with you to advise their clients.

Run sessions for clients

There is often a discrepancy between how keen clients are to refer their adviser and how many actually refer. Research conducted by one of our agencies found that the overwhelming majority of clients are happy to recommend their financial planner, while just 60% have ever made a recommendation. Many won’t even know that you welcome referrals and others might not know which type of client you’re looking for. It’s your job to educate them.

Hosting client socials or educational sessions is a good way of keeping contact with clients and remind them about your service. You may also take the opportunity to encourage them to refer you to their contacts, or bring a friend or colleague with them who may considering financial advice. Aside from demonstrating your thanks and commitment to existing clients, you could meet potential prospects too.

Networking is an important way of establishing professional connections and generating new opportunities. In resolving to put yourself out there in 2020, you may put yourself on the path to growing your business and achieving its long-term goals.

 


5 Things To Keep In Mind When You Review Your Investments In 2020

2019 is over, how has your investment portfolio performed over the last 12 months? We take a look at some of the things to keep in mind as you review investments and plan for 2020.

2019 was a year marked by uncertainty and volatility in the investment markets. So, when it comes to reviewing your portfolio's performance, it's important to keep some things in mind.

There were numerous factors influencing markets last year, many of which would have been impossible to predict. In the UK, Brexit continued to be uncertain, with a new Prime Minister and a General Election taking place over the course of the year. Trade tensions between the US and China have a far-reaching impact, highlighting how events taking place across the Atlantic can still affect European businesses and prospects.

But those that stuck to their investment plans, could still have come out on top, despite the highs and lows.

Take the FTSE 100, for example.

On Wednesday 2nd January 2019, the FTSE 100 price was 6,734.23. A year later, on Thursday 2nd January it had reached 7,704.3. Whilst volatile periods where values fell may have made some investors nervous, those that stuck to investment plans would have benefited overall. The figures demonstrate why it's important to look at overall trends rather than the day-to-day ups and downs investors experience.

So, whether you're pleased with your portfolio's performance in 2020 or disappointed, there are some things to keep in mind as you review it.

  1. Your long-term goals should remain centre stage

Investment volatility can make it easy to focus on the short term and those temporary peaks and troughs. But you shouldn't invest with a short-term goal. As a result, your long-term plans (those that are at least five years away) should be the focus of your investment portfolio. Whether your goal is to create a nest egg for early retirement or to leave something behind for grandchildren, reviewing what they are and whether you're on track is important.

  1. Volatility is to be expected

Volatility is a part of investing. Over the course of a year the value of your portfolio will rise and fall, sometimes dramatically. It can be daunting to see the value of your investments plummet, but it's not something that can be avoided. You may be tempted to sell investments when values fall, as you don't want them to fall any further. However, it's important to remember that values falling is a paper loss only until you decide to sell, when the reduced value is locked in.

  1. Look at the bigger picture

Rather than looking at short-term volatility, it pays to look at the bigger picture. Over the long term, investments will usually deliver returns that allow you to grow your wealth. Looking at a twelve-month snapshot of your investment portfolio may show investments have underperformed but look back over the last five or ten years, and you'll hopefully be on track.

  1. Review your risk profile

All investments come with some level of risk, but you can choose how much risk you take. This should be tied to your overall financial position and attitude. When reviewing your portfolio's performance, you should review your investment portfolio too. Differing circumstances and goals may mean that what was once appropriate, no longer is. It's important that you feel comfortable with the level of risk you're taking with investments. As a general rule, the greater the risk, the higher the potential returns. But you're also more likely to see a fall in investment values too.

  1. Ensure your portfolio is appropriately diversified

When it comes to investing, diversifying is important. It's a strategy that allows you to spread your money and, therefore, the risk. By investing in a range of assets and businesses, you stand a better chance of smoothing out the highs and lows. This is because whilst one particular sector may be affected by tariffs, another could be thriving. How your portfolio is diversified should reflect your goals and risk profile.

Looking ahead to 2020

Many of the geopolitical tensions that had an impact in 2019 continue into the new year too. But there are things for investors to be enthusiastic about too.

According to fund managers Schroders: After a strong 2019, we expect market returns to be more muted in 2020. Under the surface, however, there are opportunities.

2019 saw a strong performance from the most expensive assets, be it defensive 'quality' stocks or European bonds. This means that an anaemic economic environment is reflected in market valuation.

As data stabilises and the risk of recession is reduced by central bank action, a general theme across our investment teams is that we are seeking to exploit some of the extremes in valuations that this flight to perceived 'safety' has created. This means focusing on areas of relative value, be it favouring US bonds over negative-yielding European bonds, international stocks over US equities or cyclical stocks over defensive stocks.

Remember, your investment plan should be tailored to you and your goals. As a result, investments should be looked at in the context of your wider financial plan, rather than something separate. If you'd like to discuss your investments in 2020 and beyond, please get in touch with us.

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.


DIY Money Management Could Cost You In The Long Run

People taking a DIY approach to their finances could find they end up losing money. Research has found that despite shunning financial advice, many aren't confident when it comes to making complex decisions.

Whilst it can be tempting to save and manage money by taking a DIY approach to finances, it could end up costing you money. Research suggests that eight in ten people overestimate their own financial capability and could be making decisions that aren't right for them as a result.

Failing to seek financial advice when it could prove valuable may not be an issue for you. But it could be a mistake that your children and grandchildren are making. Knowing when financial advice could be beneficial can be difficult to understand, especially if you haven't received advice in the past. Understanding how financial advice works and when it's useful is important.

According to Aegon, taking a DIY approach to money matters costs savers in the long run. The research found that the most common reason for people not asking for expert help is self-belief in their own ability. However, whilst many were confident when dealing with savings and general insurance products, just one in ten were sure of their ability to make more complex decisions about pensions and investments. When you consider that both these areas are long term and can have a significant impact on future lifestyle, it's crucial that savers feel confident in the decisions they're making.

For example, just 29% of those that haven't sought financial advice are confident in making a decision about when they will retire. This compares to 54% of advised individuals.

Steve Cameron, Pensions Director at Aegon, commented: Managing your own finances can be rewarding, but there's a lot to consider and it's worth remembering that the financial decisions you make can have lasting implications for the rest of your life. That's why working with a financial adviser often makes huge sense.

Financial planning isn't a one-size-fits-all approach. It's designed around the individual to meet their personal needs and circumstances and can be invaluable in providing peace of mind, helping individuals make the right choices for their future wealth. There's a real danger that poor decisions can mean plans unravel, putting people's financial future in jeopardy. Having a professional by your side helps make sense of your options, many of which you might not know you even had.

The financial benefit of advice

Whilst the above focuses on how confident people are about their financial decisions, past research has highlighted the monetary impact of not seeking advice too.

The International Longevity Centre has tracked how asset values have changed for individuals receiving advice and those opting for a DIY approach. The findings highlight how financial advice can help wealth grow:

  • Whilst not having enough wealth is often a common reason for not seeking financial advice, the research indicates it can have an even greater impact. The individuals defined as 'just getting by' saw a 24% boost to their pension wealth compared to the 11% experienced by 'affluent' individuals
  • Building an ongoing relationship with a financial adviser was also found to be beneficial; those that received advice at both points in the analysis had nearly 50% higher average pension wealth than those only advised at the start

When can financial advice help you?

So, when should you seek financial advice? The International Longevity Centre report indicates that there is a benefit for working with a financial adviser on an ongoing basis. However, there are points in your life when one-off financial advice can be invaluable. This will, of course, depend on your personal circumstance, but could include:

  • At retirement, you may have many financial decisions to make that will affect the rest of your life. Working with a financial adviser can help you understand what your options are and the income you can expect throughout retirement.
  • Estate planning can be complex. Part of this will include understanding your current wealth, how it will change, and how this can be distributed among loved ones. It may also include taking steps to reduce Inheritance Tax if this is a concern.
  • Following children, you may want to take steps to ensure you can provide financial support in the future. This may include supporting them through university or a deposit to get on the property ladder. Laying out plans and choosing the right products soon rather than later can help.
  • After a divorce, your priorities and goals may have shifted significantly. Taking financial advice at this point gives you a chance to reassess your current situation and whether you're on track to achieve the future you want.

If you'd like to understand how financial advice could help your loved ones, whether on an ongoing basis or as a one-off, please contact us. We'd be happy to discuss your circumstances and where we can add value to your life.

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.

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.


How Do UK Pensions Compare To The Rest Of The World?

A report has ranked different pension schemes from around the world. So, how does the UK measure up and what could it learn from the top performers?

Pensions are a crucial part of planning for retirement. But how do pensions in the UK compare to the rest of the world and how can you make the most of your savings?

Australian research has compared the pension systems of 37 different countries. It assessed a range of different indicators, from savings though to operating costs. It looked at both social security systems and private sectors. The report aims to inform pension decisions. It notes that ageing populations are placing pressure on governments around the world.

So, how did the UK do?

After all the indicators are considered, the UK ranks 14th, earning a C+ grade. Whilst that's not bad, it certainly suggested that there's room for improvement. In fact, the research suggested that there are major risks and shortcomings that should be addressed to improve efficacy and long-term sustainability.

At the top of the table were the Netherlands and Denmark, both earning an A grade, followed by Australia with a B.

How can the UK pension system improve?

The good news is that the UK is already taking steps to improve its pension score. The UK's overall score increased from 62.5 to 64.4 in the last year. This boost was partly due to auto enrolment and increased minimum contribution levels. But, whilst a step in the right direction, the report identifies areas that could be improved. These include:

  • Increasing the coverage of auto enrolment: The majority of employees are now covered by auto enrolment, it misses out some key groups. This includes the self-employed and some part-time workers.
  • Raising minimum contribution levels: The current minimum contribution level is 8% of pensionable earnings. This is made up of employee and employer contributions. Whilst better than not saving into a pension, this falls below recommended saving levels to maintain lifestyles.
  • Require retirees to take some of their pension as an income stream: Since 2015 retirees have had more freedom in how they access their pension. Should they choose to, they can withdraw it as a single lump sum, for example. However, the report recommends restoring the requirement to take part of retirement savings as an income stream.
  • Raising household saving: The report also highlighted saving levels compared to household debt. Having debt in retirement can have a significant impact on lifestyle and income.

How do pensions in the Netherlands and Denmark differ?

Looking at the overall results of the research, the UK falls within the middle. But how does it compare to those that claim the A ranking?

  • The Netherlands: Most employees in the Netherlands belong to occupational schemes that are Defined Benefit plans. Defined Benefit (DB) pension schemes offer a guaranteed income in retirement. This is often linked to years of service and working salary. This gives retirees certainty and means they take less responsibility for their pension income. There are DB schemes available in the UK but the number of these is falling. This is due to the cost of administering them rising as life expectancy rises. As a result, Defined Contribution (DC) schemes are more common in the UK. The income delivered from a DC pension depends on contribution levels and investment performance. Therefore, they offer less security in retirement.
  • Denmark: Like the UK, most pensions in Denmark are DC schemes. However, there are some key differences. Everyone that works more than nine hours in Demark between the ages of 16 and 67 must contribute to the supplementary pension fund. This means coverage is larger than auto enrolment in the UK. Employees can also not opt-out of ATP. Another crucial difference is that after saving through ATP, a pension is then paid in instalments once you reach retirement age. This provides a stable income throughout retirement. In contrast, UK pensioners can choose how and when they make pension withdrawals once they reach the age of 55.

Taking control of your pension

The UK might not come out top of the research. But that doesn't mean that you can't take steps to ensure you have the retirement you want. Setting out your goals and careful planning can help you secure the retirement you want. If you're worried, you'll face a pension shortfall, among the steps to take are:

  • Assess how far your current saving habits will go: Hopefully, you're already paying into a pension or making other provisions for retirement. Assessing how this will add up between now and retirement is crucial. You should also look at the level of income it will deliver annually.
  • Increasing contributions: If you've been auto enrolled into a Workplace Pension, it's likely you're paying the minimum contribution levels. However, this often isn't enough to achieve retirement dreams and you can increase contributions. In some cases, your employer will increase their contributions in line with yours.
  • Understand your investments: If you have a DC pension scheme, your contributions will usually be invested. This helps your savings to grow. But how much risk should you take and what performance can you expect over the long term? Getting to grips with how your pension is invested can help you make decisions that are right for you.

Please get in touch if you'd like to discuss your current pension and retirement plans. We'd be happy to help you understand whether you're on track and the lifestyle you can look forward to in retirement.

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.


6 Things The Mini-Bond Scandal Can Teach Investors

The Financial Conduct Authority has banned mass marketing for mini-bonds following a scandal last year, but investors should still keep some key lessons in mind.

Thousands of investors have been sucked into putting their money into unsuitable mini-bond products following extensive advertising, particularly on social media. The Financial Conduct Authority (FCA) has now clamped down on the marketing of such products following a scandal. But many are likely to lose their money.

What is a mini-bond?

A mini-bond is effectively an IOU where you lend money directly to businesses, receiving regular interest payments over the term of the bond. However, the money you make back is based entirely on the firms issuing them and not going bust. As a result, they aren't suitable for most investors. If the business collapses, you're not guaranteed to receive your money back. Mini-bonds are not normally protected under the Financial Service Compensation Scheme (FSCS) either.

The London Capital & Finance scandal highlighted this.

Around 11,500 bondholders poured £237 million into London Capital & Finance after being promised returns of 6.5% to 8%. The investment opportunity was advertised extensively, including on social media platforms. This meant it reached a wide range of investors, including those it may not be suitable for. The firm collapsed in January 2019 and investors could lose all their money tied up in the mini-bonds. For some investors, it could mean losing their life savings or having to adjust plans significantly.

Coming into force on 1 January 2020 and lasting for 12 months, the FCA has banned mass marketing of speculative mini-bonds to retail customers. Over the course of the year, the regulator will consult on making the ban permanent.

Andrew Bailey, Chief Executive of the FCA, said: We remain concerned at the scope for promotion of mini-bonds to retail investors who do not have the experience to assess and manage the risk involved. The risk is heightened by the arrival of the ISA season at the end of the tax year, since it's quite common for mini-bonds to have ISA status, or to claim such even though they do not have the status.

As a result, speculative mini-bonds can only be promoted to investors that firms know are sophisticated or high net worth.

Learning from the mini-bond scandal

The FCA ban aims to protect investors, but some lessons can be learnt from the mini-bond scandal too.

  1. Make sure you understand your investments

Investments can be confusing, but you should ensure you understand where your money is going before parting with your cash. Taking some time to do your research can give you more confidence in your decision and reduce the risk of choosing products that aren't right for you. If you'd like to discuss an investment opportunity and how it fits into your plans, you can contact us.

  1. Ensure investments are authorised and regulated

Investments that are regulated and authorised by the FCA can provide you with protection. The regulation around mini-bonds is much less stringent than for listed bonds. What's more, a business does not have to be regulated by the FCA to issue mini-bonds. As a result, they aren't suitable for most retail investors. Even when a business claims to have regulations, it's worth checking this is true and understanding what protection this offers you, if any.

  1. Make sure investments fit your risk profile

Mini-bonds are considered a high-risk investment. That means there's a greater chance your returns could be less than your initial investment or that you lose all your money. Your risk profile should consider a range of different areas, such as your capacity for loss, investment goals and other assets. In many cases, the risk associated with mini-bonds would be too high for typical investors.

  1. Be mindful of scams

Financial scams are rife, and the mini-bond scandal highlighted why it's important to carry out due diligence. Some mini-bonds falsely claimed to have ISA status, making them more tax efficient. This could mean some investors face unexpected tax charges. However, this claim could also lead investors into making a decision that's wrong for them. ISAs are commonly used products and considered 'safe', in contrast to mini-bonds.

  1. Don't rush into making decisions

When you see an ad with an enticing offer, it's easy to react straight away. However, carefully considered decisions are far more appropriate than impulse ones when it comes to investing. Don't rush into making investment decisions. Instead, take some time to think about what your options are, and which is most appropriate for you.

  1. Be realistic about investment performance

With some money bonds claiming to be low risk whilst offering returns of 8%, it's easy to see why retail investors were tempted. But investments with higher potential returns will carry higher levels of risk too. When assessing investment opportunities, be realistic. Here, the old saying rings true: if it sounds too good to be true, it probably is.

Please contact us if you have any questions or concerns about your investment portfolio. Our goal is to ensure each of our clients is comfortable with their investments, and wider financial plan, including the level of risk involved.

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.