Should I pay my child’s university fees?
No-one wants to see their child struggle financially but how much should parents be helping out with university fees, or should they rely on student loans?
Going to university isn’t cheap for a young person, even if they live on baked beans and pasta.
The cost of studying at university is estimated to be around £57,000 for a three-year degree, according to SaveTheStudent.
That is around £19,000 per year, so your loved one could still be in touch for more than just help with their washing.
The costs
Tuition fees alone can cost up to £9,250 in England, Wales and Northern Ireland or £27,750 for a three-year degree.
There are no tuition fees in Scotland if the student has been living in the country for three years.
Additionally, a student will also need to pay for materials such as books as well as their own food, energy and accommodation.
SaveTheStudent’s National Money Survey estimates living costs of around £9,720 or £29,160 over three years.
Adding that to three years of tuition fees takes the total cost to £56,910 – more than double the average salary in the UK.
But there is help available.
All students can apply for a tuition fee loan to cover the annual university bill.
UK nationals who are studying for the first time can also usually apply for a maintenance loan to help cover living costs, which varies depending on the university and your household income.
But leaving university with large debts may make it harder for your child to get on the property ladder or access other credit as it will form part of the affordability criteria in applications.
It is easy to see why parents may be tempted to help their child with these costs instead.
Paying your child’s university fees may help give them a more financially stable start in life as it could be easier to access an affordable mortgage rate or other credit if they don’t have a large level of student loan debt.
Here is what to consider.
Financial independence
University is likely to be the first time your child lives alone and learns the importance of running a household and budgeting.
This could be a good chance for them to learn how to setup and pay bills or to put money aside for essentials such as the food shop and their studies.
There a risk of spoiling them if you pay for everything.
Would it be better for your child, and your wallet, if they got a job to cover their costs or if you just made a small contribution each month to get them started?
Will you have to pay anything?
University costs may look daunting but the repayment terms on a student loan are different to traditional finance and it may be that the debt never actually has to be repaid.
Student loan repayments only become due in the April after graduation and only once the borrower reaches a certain annual earnings threshold.
The threshold depends on when a student started their course, but it is currently £27,295 for an English or Welsh student who started a course anywhere in the UK on or after 1 September 2012.
It functions, in effect, as a 9% income tax levy above this threshold. Any student debts are cancelled 25 years after the first April the student was due to repay.
While this dampens their earnings potential it won’t affect aspects of their finances such as credit rating. Mortgage providers will take into account how much they’re paying off each month as a part of income considerations but won’t consider the size of the ‘debt’.
Some employees may not earn above the minimum threshold and may not ever fully repay the loan, so paying for them may just be wasting your money.
Can you afford to wait?
Rather than paying upfront, you could wait until the end of your child’s degree. If they look likely to earn above the repayment threshold, you could then step in and help.
This way, your child will also have hopefully learned how to manage their money during university.
Alternatively, your child may end up with a highly paid role that makes it easy for them to pay off the loan quickly.
Can you afford to help?
Don’t give away money you may need for your own bills, retirement or care needs.
That is especially important at the moment with inflation, or the cost of living, expected to hit 13% over the next few months.
This could mean higher energy and food bills, while mortgage rates could get more expensive as interest rates rise to curb inflation.
Alternatively, you could put money aside for another use such as to help your child with a mortgage deposit once they graduate.
It may be worth speaking with a financial adviser to see how paying your child’s university fees fits in with your own financial plan and the best way of using the money.
Pension opt outs are rising – but foregoing a pension could cost you thousands
Increasing numbers of employees are opting out of their workplace pensions as the cost-of-living crisis bites but experts warn this could leave future retirees out of pocket.
Inflation has already hit a 40-year high of 10.1% and the Bank of England predicts it could go as high as 13%, with some forecasters even warning the figure may hit 18% or higher.
That means increased bills for everything from energy to food, travel, clothes and holidays.
The Bank of England has already begun increasing the cost of borrowing – the base rate – in an attempt to bring inflation down.
That will mean higher interest on loans and mortgages which could also add to financial pressure on households.
Typical annual gas and electricity bills were going to rise from £1,971 to £3,549 in October, however the Government have introduced a new Energy Price Guarantee limiting this to £2,500 per annum for an average household for the next 2 years.
It is no surprise that households are looking to cut back on their expenses in a bid to preserve at least some of their cash.
Many are looking at their pension contributions and wondering if the money can be used immediately rather than for their retirement to help get over rising cost pressures.
Analysis by online pension provider Penfold has found that the number of savers opting out of company pension schemes increased 29% from March to July this year, just as the cost-of-living crunch began to make its effects felt.
While this may save you money and release some spare cash in the short term, the impact could be felt much longer-term and mean a poorer retirement.
Pete Hykin, co-founder at Penfold, comments: “Everyone understands that the pressures facing today’s savers are considerable”.
“Many people are feeling the pinch on their incomes and savings, but it’s vital that those people who are financially able to pay into their pension continue to do so”.
“The increasing number of opt-outs is a worrying trend, especially as the impact of pausing contributions, even for just a short period, can have a hugely detrimental impact on an individual’s finances in retirement, especially for those starting out in their career.”
A 20-year-old stopping a contribution of £200 per month would miss out on £28,000 in their pension pot from stock market performance if this was carried on for a three-year period.
That means less money for your golden years at a time when you may not be working and may not have other sources of income beyond a state pension.
You would end up having to invest more once you restarted contributions if you wanted to catch up.
Although it is especially tough at the moment, it’s essential to maintain contributions and make cost savings elsewhere if possible. Ultimately cutting off your long-term wealth growth to beat a short-term problem is going to harm your finances either way.
Inheritance disputes are soaring – here’s how to avoid painful family quarrels
Disputes around how a person’s estate should be distributed are soaring official figures show, attributed to poorly drafted, or the lack of, wills to set out their wishes.
Planning for what happens after you die may seem morbid, but it could help prevent extra stress and upset – as well as a large bill – for those you leave behind.
Research by law firm Nockolds shows there were 9,926 challenges to how inherited estates are managed and distributed – known as probate – in England and Wales in 2021.
The figure was up 37% compared with 2019, according to a freedom of information request (FOI) made by Nockolds and reported by the Financial Times.
Experts warn that an increasingly litigious society and rising house prices could be driving more people to block probate and try to take a share of or control a deceased relative’s estate.
This hasn’t been helped by the rise of online DIY services that let people prepare their own will online by answering a series of questions without consulting a lawyer.
Without clear instructions, family members could easily disagree about issues such as how you want to be buried and what happens to your hard-earned assets such as your savings and your home once you die.
Here is what to consider.
Make your wishes clear
The best way to avoid family disputes is by writing a will.
This is a legal document that sets out who should manage your assets and liabilities – known as your estate – and who should receive any of your wealth or possessions.
Research by Royal London shows 56% of adults in the UK don’t have a valid will, rising to 79% for 18–34-year-olds.
Without a valid will, your estate falls under the rules of intestacy.
This means that regardless of who you may have chosen, the law dictates the order in which people inherit your estate.
Under the intestacy rules, a spouse or civil partner is automatically recognised as the person who should benefit the most, followed by children.
This may create an issue if you have been living with someone but weren’t married or in a civil partnership.
They may not have any rights to your estate, even if you wanted to leave them your home or other possessions as there would be no document setting this out.
Avoid disputes
Just writing a will online may not be enough, especially for more complex issues.
An automated will writing service may not raise issues to consider such as if you are divorced, remarried or have children from different relationships, all of which could lead to different claims on your estate.
If there are disagreements or parts of the document are unclear, your will could be deemed invalid and moved to the intestacy rules.
Alternatively, your loved ones could end up in court to contest it, which can mean expensive legal fees. There are ways to avoid this before you pass away.
Some DIY services will let you pay extra for a lawyer to check your will, or you could consult a solicitor directly to ensure the document reflects your wishes and situation.
It is also important to review your will if your situation changes.
Royal London research shows six in 10 people haven’t reviewed their will in over a year, with 29% leaving it more than five years.
Plenty could have happened in that period such as a new child or property.
Inheritance tax
Your will is also an important inheritance planning tool.
Currently inheritance tax of 40% is paid on any assets worth more than a nil-rate band threshold of £325,000, plus £175,000 for your main residential property.
There is no inheritance tax between spouses though, so you can reduce the liability of your estate by passing on assets to your husband, wife or civil partner through a will.
You can also leave money to charity through your will and if you donate at least 10% of your estate then the inheritance tax rate drops to 36%.
None of this would be possible without a clear and concise will, saving your loved ones tax, legal fees and heartache.
Rail fares set to rise by less than inflation
Commuters braced for rising energy bills and higher borrowing costs may find their rail fare increases aren’t as bad as expected next January.
Despite train companies being private companies, the Government has the power to limit increases on some rail fares to ensure they do not exceed the cost of living and remain affordable.
Around 45% of all rail fares are subject to the Government’s cap including season tickets on most commuter journeys and some off-peak return tickets.
The increases usually take place each January and are linked to the retail price index (RPI) from the previous July.
Other services that link bills to RPI include broadband and mobile phone networks, which argue that increasing customer bills help maintain services and infrastructure.
This is a contentious enough issue as its calculations no longer meet international standards and it tends to be higher than the more widely recognised consumer price index (CPI).
Another issue is the actual RPI rate as a high measure can mean rail tickets are too expensive for travellers.
If train fares were to increase by July’s RPI rate next January, they could go up by 12.3%, the largest ever increase amid the ongoing cost-of-living crisis.
It wold mean, for example, that commuters travelling between Reading and London on any route would have to pay an extra £620 for the new season ticket cost of £5,664.
But the Government has instead said fares will not go up by so much and will be frozen until at least March 2023.
A Department for Transport spokesperson comments: “The Government is taking decisive action to reduce the impact inflation will have on rail fares during the cost-of-living crisis and will not be increasing fares as much as the July RPI figure.
“We are also again delaying the increase to March 2023, temporarily freezing fares for passengers to travel at a lower price for the entirety of January and February as we continue to take steps to help struggling households.”
Similar action was taken during the pandemic to give commuters more time to purchase tickets at lower prices.
The Government hasn’t confirmed how much the new cap will rise by, but this is usually confirmed each December.
Source:
https://commonslibrary.parliament.uk/how-much-could-rail-fares-increase-by-in-2023-and-why/
The World In A Week - A nation in mourning
Written by Shane Balkham.
While we welcomed in the new prime minister, Liz Truss, last week was dominated by the sad news that her majesty Queen Elizabeth II had passed away. It is indeed a sombre occasion and one that will be marked by ten days of official mourning.
It does present challenges for the new prime minister, as from 9th September all parliamentary business is suspended until after the official mourning period has finished. It has been suggested that the official day for parliament to recommence would be 22nd September, however there was a planned recess from that day until 17th October, to allow for political party conferences to be held.
Arguably, the most challenging item to resolve during the mourning period is Liz Truss’s £150 billion energy support package. It is fully expected that the energy price guarantee will be in place for 1st October, however legislation will be needed to extend that support to Northern Ireland.
The Bank of England has also announced the delay of their September Monetary Policy Committee (MPC) until after the official funeral. The MPC will now meet on 22nd September, which is a critical date, putting it after what is widely expected to be an emergency budget announcement on 21st September. That said, it is still unclear how parliamentary business will proceed throughout the period of mourning.
Having a reign that lasted 70 years and 214 days does allow for some interesting reflections; according to a Bloomberg columnist, the British stock market multiplied more than 2,500-fold during the Queen’s reign. It reminds us that long-term decision making is a powerful tool and something we can all adopt for our investments.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 12th September 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - In Liz we Truss?
Written by Millan Chauhan.
Last week, the Federal Reserve’s Chair Jay Powell delivered a hawkish stance stating that higher interest rates are needed to combat inflation. With annualised inflation having reached 8.5% in July 2022, the Fed now faces a balancing act between controlling inflation and causing an economic slowdown through aggressive hiking. Following Powell’s address, we saw US stocks tumble with the interest rate sensitive segments of the market the hardest hit. This also quickly spread to other geographical equity markets and stuttered the summer rally we have seen in equity markets. In the US, we also saw new single-family home sales fall to their lowest level in two years as higher mortgage rates make owning a home less affordable.
In the UK, we saw the energy regulator Ofgem announce an 80% increase in the cap of household energy bills to £3,549, effective from 1 October 2022, which has been caused by higher natural gas prices and a more restricted supply following Russia’s invasion on Ukraine. There have been further energy cap increases planned with the cap expected to rise beyond £5,300 by January 2023. We are also in the middle of the Conservative’s leadership contest which has been dominated by the respective cost-of-living stance of Liz Truss and Rishi Sunak. Liz Truss remains the favourite heading into the final week, with the outcome of the race set to be announced on 5th September.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 30th August 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Autumn is coming
Written by Shane Balkham.
Inflation continues to dominate investors thoughts and last week we had the UK’s rate of inflation climbing to 10.1% for July on an annualised basis, the first time the measure has registered a double-digit increase in more than 40 years. Prices rose 0.6% in the month of July, driven by the persistent increases in energy and food. Food inflation recorded 12.7% in the month of July, the highest rate for more than 20 years.
This data will certainly increase the resolve at the Bank of England to continue along the current path of interest rate hikes. Expectations for a further 0.5% hike at the next meeting have solidified. The quarterly analysis from the Bank of England in its Monetary Policy Report published at the beginning of the month, projected inflation to creep higher, with energy prices poised to soar with the energy price cap set to increase in October.
The situation continues to be highly politicised and whoever ascends to become Prime Minister will have to take measures to ease the pain being felt by consumers. This could mean using fiscal measures to subsidise fuel costs, while simultaneously tackling headline inflation. This scenario will undoubtedly add further pressure to an already stressful Bank of England.
The Bank of England is not alone. The minutes from the Federal Reserve’s meeting in July indicated that the Central Bank would continue to prioritise the fight against inflation ahead of economic growth for as long as it would take. Signals have become mixed, with the US inflation measures falling in July and the Federal Reserve minutes confirming a strong line on the battle to control inflation.
Even if elements of the inflation make-up are seeing signs of reducing pressure, it is clear that central banks will remain focused on fighting inflation, as they continue to play catch-up on a situation where they were caught sleeping. Cognisant of the ghosts of the past, central banks will not want to stop the rate hiking cycle too early and risk losing the loose grip they are perceived to have on inflation.
The end of the summer will be monitored closely, with the central bank committee meetings in September and the economic symposium in Jackson Hole, Wyoming next week. A political autumn of discontent with inflation to fight and a recession to avoid?
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 22nd August 2022.
© 2022 YOU Asset Management. All rights reserved.
Tax cut time? Here’s what Sunak and Truss are offering
The Conservative Party have decided to elect a new leader after Boris Johnson’s tenure as Prime Minister has come to an end.
But with the state of the economy in flux, the candidates need to be more careful than ever to emphasise their financial offerings to voters.
Here’s what each contender has said they would implement, and what that could mean for your money.
Rishi Sunak
The now former Chancellor, Rishi Sunak, was catapulted into prominence over his handling of the economy during the coronavirus pandemic.
From Eat Out to Help Out to the furlough scheme, Sunak was credited with staving off the worst effects of the lockdowns and fall out from the pandemic.
But the MP for Richmond in North Yorkshire has been widely criticised for his involvement as Chancellor in the subsequent economic issues triggered by the pandemic such as widespread inflation, soaring energy bills and raising taxes to pay for prior spending.
Sunak has pledged to cut the basic rate of income tax from 20% to 16%, but only by the end of the next Parliament – still seven years away. This would represent the biggest cut to personal taxes in around 30 years, were it to come to pass, and would save someone on an average salary of £32,000 around £777 a year.
However, if this level is matched in pensions tax relief, it would be a significant cut to the amount of tax relief anyone saving into a pension would get.
He has also committed to cutting that rate to 19% in 2024, but this was already announced before the leadership contest began.
Sunak has also promised to end VAT on energy bills should average prices rise above £3,000 per year, but this was only offered after initially declining to offer the cut. This would save the average household around £160 a year.
The former Chancellor has also promised to cut business rates in 2023. Beyond this however, he has been relatively quiet on financial policies, other than to criticise his opponent’s stances.
Liz Truss
The current frontrunner candidate Liz Truss has been vocal on her desire for the Bank of England base rate to move to a higher level. If she is made Prime Minister, she would couple this with significant tax cuts.
Tax cuts are the centrepiece of Truss’s offering and she has said she intends to “start cutting taxes from day one.” Her proposals add up to some £30 billion of cuts to taxes.
This includes scrapping the 1.25% National Insurance hike, and the 6% corporation tax hike which is due to be implemented next year.
The current Foreign Secretary has also pledged to scrap green levies on energy bills for two years to help households struggling to pay as prices soar.
Truss has also said she would include inheritance tax in a wider review of the tax system – looking at whether it is fit for purpose.
Truss says she intends to pay for the tax cuts by renegotiating the way the Covid-accrued debt is paid, making it a longer-term debt more similar to the way the Government paid back its debts after the Second World War.
While the contest is ongoing and more pledges are no doubt coming through the pipeline, readers must remember that these policy announcements are largely designed to appeal to the Conservative Party membership.
With the Bank of England predicting 13% inflation by the end of the year, whoever takes over at No.10 will no doubt have to adapt to the situation as it develops.
Energy bills set to worsen this winter – top tips on how to save
Energy bills are set to soar again this winter as the energy crisis in Europe worsens.
Prices have soared in the past year as demand surges – this has been greatly exacerbated by the conflict in Ukraine and ensuing tensions with Russia.
As a result, the current price cap on energy bills, as set by energy regulator Ofgem, is £1,971 having increased from £1,277 on 1 April.
But as announced on 26 August, this cap will now rise to £3,546 on 1 October.
In practice these figures are quoted for the ‘average’ home usage, so you could end up paying more (or less) depending on what you actually use in your home.
Although tricky, this means it is still possible to save money on your energy bills. There are a few ways of doing this.
Make changes to your home
The first, and more costly way to make long-term changes to your energy consumption is by changing the way your home uses, conserves, or even produces energy.
The Government has launched a tool that you can use to get an idea of what potential upgrades you can make to your home, the costs and potential savings.
Ideas include installation of cavity, roof and floor insulation. Also, installing a heat pump to replace a gas boiler, or solar panels to produce your own heating or energy.
It also includes ideas such as upgrading your windows to double glazing, installing smart thermostats to regulate your heating more efficiently or buying more energy-efficient home appliances.
While these are all good ways to make your home more energy efficient, the issue with many is that they’re either not practical depending on your property or require personal investment that won’t realise the financial benefit for some time.
Taking the aforementioned Government tool can give you an idea of the saving and costs of each idea.
Make changes to your behaviour
This is where behavioural changes come in and provide the possibility to save money immediately on your energy bills.
All the figures below are quoted by the Energy Saving Trust based on current energy price cap levels and average household by size and usage levels – so this is liable to change come October. But if anything, the cost savings could get better. Here are those tips:
- Ditch one bath a week for a shower – £12
- Reduce dishwasher usage by filling it completely – £14
- Turning off all lights in rooms you’re not using – £20
- Washing your clothes at 30 degrees and reducing your number of washes with larger loads (i.e., don’t put one jumper in and put a wash on) – £28
- Insulate your hot water cylinder if you have one – £35
- Fill the kettle to the level you need, not the top – £36
- Installing draft excluders or cushions on doors to prevent heat loss to rooms you’re not using frequently – £45
- Turn off the electronics in your house instead of leaving things like TVs on standby when you’re not using them – £55
- Dry clothes on a rack or in the garden, avoid the tumble dryer – £60
- Take shorter showers. The Energy Saving Trust says under four minutes is ideal – £70
While all these behavioural tweaks save fairly small amounts individually, taken together you’re looking at around £375 a year less on your bills. Were the price cap to rise to £3,400, this would be a saving of around 11% – no small amount.
While in the context of long-term wealth growth this might seem like small fry, the truth is cutting day-to-day living costs is one of the most effective ways to save more for the long term.
The World In A Week - Witnessing history
Written by Millan Chauhan.
Last week, the US Bureau of Labour Statistics announced that US CPI decelerated to 8.3% which was above estimates of 8.1%. Estimates had predicted a sharper slow-down in the level of inflation and the market reacted negatively to this news with the S&P 500 closing the week down -3.5% in GBP terms. With inflation still persistent and slowing down less than expected, this has increased estimates of a full 100 basis points rise in interest rates. Markets are expecting either a hike of 75 basis points or 100 basis points, which would be the largest rate hike in 40 years and would move the target range to between 3.0% and 3.25%. With further hikes expected, we are on track to see rates reach 4.0% by the end of the year. The Federal Reserve is expected to make its decision on Wednesday evening.
The Bank of England Monetary Policy Committee will make an interest rate decision on Thursday, as inflation came in at 9.9% in August 2022 which was down from 10.1% in July 2022. The expectation is that the policymakers will raise rates by 50 basis points, but they could adopt a similar stance to other central banks and hike more aggressively. The decision comes after the announcement of the Prime Minister Liz Truss’s energy pricing plan that will freeze average energy bills at £2,500 per year.
In the UK, we have observed a period of national mourning over the last 10 days following the death of Queen Elizabeth II, who reigned for 70 years and 214 days, the longest of any British monarch and the longest recorded of any female head of state in history. The state funeral of our late Queen took place in London yesterday, which was followed by a military procession to Windsor Castle where she was laid to rest in St George’s Chapel. Millions of people watched on the streets or on their televisions at home, witnessing a fitting tribute to mark Queen Elizabeth II’s final journey.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th September 2022.
© 2022 YOU Asset Management. All rights reserved.