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.

Ministers have launched a financial wellbeing scheme with the goal of turning Britain into a nation of savers over the next ten years. 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, please get in touch.

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.

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.

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.

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.

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.

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.

5 Tips For Helping Your Children Get On The Property Ladder In 2020

Aspiring homeowners often face a struggle to secure a deposit. It's a challenge that may be affecting your children and grandchildren. But there are things you can do to help them get on the property ladder in 2020 and improve their financial security in the future.

The good news is that research from Post Office Money suggests first-time buyers are saving a deposit quicker. Yet, it's still taking an average of 3.6 years to save the lump sum required to act as a deposit. When you look at the sums involved, it's not surprising that first-time buyers are taking years to save. The average deposit for a first home in the UK now stands at £43,585. This varies significantly between regions. The lowest average deposit for first-time buyers is £21,696 in Blackpool. This compared to £170,003 in London.

First-time buyer households are putting away £843 a month when building up a deposit. This is the equivalent of 21% of their combined income. They're taking a number of steps to achieve their goal, including:

Working overtime (33%)

Selling items online (25%)

Finding a new, higher paying job (18%)

Using credit cards to cover everyday expenses (15%)

However, just 29% of first-time buyers did so without financial support. With huge growth in property prices over the last couple of decades and more stringent checks from mortgage providers, more people are turning to the Bank of Mum and Dad (or even grandparents).

Why Help First-Time Buyers With A Property Deposit?

Where possible, lending a helping hand with a property deposit can get loved ones on track for financial security.

In many cases, mortgage payments are lower than rental costs. Providing support to help children or grandchildren get on the property ladder that bit quicker can improve their finances immediately. It's a step that can improve their financial security in the long term too. Being able to start paying off a mortgage sooner can help free up income later in life.

Helping The Next Generation Secure Their Deposit

Do you want to help the next generation get on the property ladder? There is more than one way to do it.

1. Gift Loved Ones A Deposit

The most common way parents and grandparents are helping the next generation is by gifting a deposit.

According to Legal and General, the average contribution towards a deposit is £24,100. In total, the Bank of Mum and Dad is estimated to have lent up to £6.3 billion in 2019 alone. It's a gift that can make the dream of homeownership a reality.

But you need to assess the impact on your own finances here too. How would taking a lump sum out of your current wealth affect you in the short, medium and long term? Could it mean that retirement aspirations are no longer feasible? Speaking to a financial adviser can help you understand the impact of gifting a home deposit. It's a step that can give you peace of mind as you help loved ones purchase their home.

2. Loan The Money Needed

When gifting isn't an option, loaning a deposit can be an alternative. If the money isn't needed now but will be in the future, it's an option that may be right for both you and your loved ones.

It's important you take both financial and legal advice if this is an option you're considering. Remember, circumstances can change and having a formal contract in place can provide both parties with security.

3. Research Family Mortgages

It is possible to secure 100% mortgages, meaning homebuyers don't need any deposit at all. However, these are often offset mortgages that need support from family.

For instance, some family mortgages allow you to deposit savings into an account earning interest which then acts as security if repayments aren't made. Others will allow loved ones to take out a 100% mortgage if your own home is used as security.

These options can seem like a simple way to lend a hand. But it's important to keep the risks in mind. If your child or grandchild doesn't keep up with repayments, it's possible you'll lose your savings or even your own home. It's wise to discuss with the homebuyer about what's affordable and what financial safety nets they have before proceeding with a family mortgage.

4. Point Them In The Direction Of Government Schemes

There are several government schemes that can boost efforts to save a deposit that may be right for your children and grandchildren.

First, the Lifetime ISA (LISA) can give a 25% bonus on contributions. A LISA can be opened by individuals between the ages of 18 and 40, and deposits can continue to be added until account holders are 50. Each tax year, £4,000 can be deposited, leading to a maximum bonus of £1,000 a year. Deposits can either be held in cash or invested. The drawback here is that withdrawals before the age of 60 for a purpose other than buying a home will lose the bonus and incur an additional penalty.

Second, a Help to Buy equity loan is also an option. Aspiring homeowners can purchase a new build home with just a 5% deposit, with the equity loan providing a further 20% boost (40% in London). As a result, a 75% mortgage will be needed to make up the rest. It's a scheme that can help first-time buyers secure a property with a lower deposit and one that may have been out of reach otherwise.

However, it's important to keep in mind that the loan will have to be repaid. This can be repaid when the house is sold or the mortgage term ends, whichever is first. Homebuyers that use the Help to Buy scheme should also be mindful of changing house prices. The amount owed is tied to the amount of equity the loan helped you buy. So, if house prices have increased, so will the amount that needs to be repaid. Interest also starts to be added to the equity loan after five years.

5. Speak To Them About The Process

The process of saving a deposit and buying a house can seem complex if you've not done it before. Simply, speaking to children and grandchildren can help get them on the right track.

When calculating how much was needed for a deposit, for example, 23% of first-time buyers took advice from an independent financial adviser. A further 10% asked a parent for help. Having someone to talk to about goals and where extra savings can be made could help first-time buyers achieve their aim that bit sooner.

If you'd like to help children and grandchildren get on the property ladder, it's natural to have some concerns. You may be worried about how taking a lump sum out of your wealth would have an impact or want to ensure those not yet ready to purchase have some help if you're no longer here. Please get in touch with us to discuss how you could help and the short, medium and long-term impact.

Estate Rent Charges: The Charge To Look Out For When Buying Freehold

The potential charges you could face when buying a leasehold property have been covered in the press. We all know that leaseholders are likely to face ground rent, as well as service and maintenance charges, that could rise rapidly. But you might overlook estate rent charges when purchasing a freehold.

When you purchase a leasehold property, you own the property for a fixed period but not the land it stands on. It's often used for flats. As a result, extra charges on top of mortgage payments are to be expected. However, when purchasing a freehold property, you own the house and land with no time limit on the ownership. Usually, this means there aren't any further charges. But some freeholders are finding they have to pay estate rent charges.

What Are Estate Rent Charges?

Usually, when private developers build homes, the local council will 'adopt' the estate. This means taking responsibility for the upkeep of public spaces, maintaining roads and paying for other costs. But the local council aren't forced to do this. With budgets coming under pressure some authorities won't 'adopt' new developments. It's becoming more common for this to happen.

The services a local council would usually provide need to be paid for in some way. As a result, developers establish a way to cover this; estate rent charges.

Paying for the service you'll be benefitting from as a freeholder may sound fair. But estate rent charges are criticised for two key reasons:

1. Freeholders have typically little say in the process and the charges. Often, what they are paying for and whether the decisions made offer good value for money are not transparent.

2. Legally, developers or management companies can take possession of a property if homeowners fall just 40 days behind on their payments. Whilst used rarely, it could mean homeowners effectively lose thousands of pounds due to forgetting to pay a relatively small bill.

If you're considering buying a property with estate rent charges, it's something that should be picked up by your solicitor. During the purchase transaction, your conveyancer should inform you of the charges and how these could change.

3 Problems Estate Rent Charges Can Cause

Even if you're happy to pay rent charges on a property, it's important to consider where it may cause problems in the future.

1. Securing A Mortgage

There have been instances of mortgage applications being declined due to rent charges. Often, it's related to the fact that developers or management firms could take possession of a property, rather than the cost.

If you'll be using a mortgage to purchase your home, it's worth understanding if it'll be a problem for lenders. Checking the criteria of lenders can help you pick a provider that's right for you and the home you want. A mortgage application being declined, for any reason, could have a negative impact on your credit score.

This may not be an issue for you. For instance, you may be a cash buyer or have already spoken to your mortgage provider about the issue. However, you should consider what will happen if you want to sell in the future. Sales could fall through if the interested party is unable to secure a mortgage. This doesn't necessarily mean you shouldn't buy the property but it's something to keep in mind.

2. Selling The Property

Whilst you may be happy to pay rent charges, remember other people may not be. When selling the property, you may find that the pool of potential buyers is smaller. As a result, it's wise to anticipate that it'll take longer to sell your home when the time comes.

An additional cost that they don't have control over could put some prospective buyers off. Being transparent about what you pay, how it's changed over time, and potential increase can help ensure time isn't wasted on those that will be put off. It's a step that can also highlight how it differs from the fast-rising costs that have become associated with leasehold properties.

3. Escalating Estate Rent Charges

Compared to the overall cost of running a home, estate rent charges are usually nominal. However, you should always check how long they'll be payable for and how they could increase in the future. This allows you to make an informed decision about whether purchasing the property is right for you and make allowances for potential costs that may arise long term.

Whilst transparency is an issue, with rent charges some management companies offer freeholders more insight. Being able to see how your money is spent and voice concerns can give you peace of mind about the future.

The Value Of Financial Advice

When we think about the value of financial advice, it can be hard to quantify it. After all, you often can't be sure how your fortunes would have fared, or if your circumstances would be different if you hadn't worked with a financial adviser. But research has shown that it does have real, tangible benefits for clients, as well as being valuable in other areas too.

Despite evidence demonstrating that financial advice can be valuable, nearly half (48%) of adults in the UK have never taken advice. Whilst the cost of advice may be a factor for some, this isn't always the key factor. A third believe that they can manage their finances perfectly well themselves, with this rising to 57% of over-65s.

The Financial Benefits Of Advice

Research completed by the International Longevity Centre highlights how financial advice can help your wealth grow:

Those that received professional financial advice between 2001 and 2006, on average, saw their pensions and financial assets grow by £47,706 in 2014/16

Pension savers classed as 'just getting by' saw a 24% boost to their pension fund, compared to 11% of those considered affluent

Focussing on financial assets, the benefit of financial advice was £16,715 in 2014/16 compared to £13,888 in 2012/14, with a greater impact for 'affluent' groups

Whilst the cost of financial advice may be a prohibiting factor for some, the results show that the benefits can outweigh the initial and ongoing costs.

Whether you choose to receive ongoing advice, with regular reviews, or advice at key moments in your life, both can be useful. For example, you may choose to review your finances with a professional when you start a family or as you approach retirement. However, the research found that individuals who saw a financial adviser several times throughout the research period had nearly 50% more pension wealth on average than those that seek advice only once.

Financial advice can help you make the most of your wealth and put you on the right path for achieving aspirations.

The Non-Financial Benefits Of Advice

The research clearly highlights why financial advice can be useful in terms of growing your assets and pensions. But it's far harder to measure the non-financial benefits. Often, these are intangible, but they can be just as important as the increased value of assets.

Among these benefits are:

Time-Saving: Ensuring you're getting the most out of your money can be time-consuming. You may not have the time or inclination to keep track of your investment performance, forecast your pension income or find the best place to put cash savings. Working with a financial planner can take these responsibilities out of your hands. Your time is valuable and by handing over some of the financial decisions and research to an adviser, you're able to focus on what's most important to you, whether that's your career, family or something else.

Confidence: Financial decisions can have long-term impacts. As a result, it's not surprising that some people can feel apprehensive about their decisions or worry that they've made the wrong choice. Having someone to talk through your decisions and the different options can provide peace of mind. Knowing that a professional has looked at the pros and cons can give you confidence, knowing you've picked a path that's right for you and your goals.

Security: Often when we make financial plans ourselves, we forget to look at what will happen if something doesn't go to plan. Would you still be on track if your income were to stop for six months? Could you still leave an inheritance if care were needed? As part of the financial planning process, we'll help you consider what kind of safety net can provide you with security. For some, this may be holding a greater portion of liquid assets, for others, it could include taking out some form of financial protection.

Keeping Up To Date With Changes: Legislation and regulation are constantly changing. If this isn't part of your job, it can feel impossible to keep up with these and know how to incorporate them into your financial plan. Working with a financial planner can take this weight off your shoulders. As part of your annual review, we'll explain how change has had an impact on your initial plan. You'll also be able to access advice if you have concerns following changes too.

If you'd like to review your financial plan or learn more about how advice can benefit you, please get in touch. Our goal is to create bespoke financial solutions that reflect your aspirations.