danielashby

How does cashflow modelling help you?

Financial planning can be filled with jargon and difficult to understand how it helps or the value it adds to your plans. Despite the confusion, one of the valuable tools we use is cashflow modelling. It’s a strategy that offers plenty of benefits to clients, as well as building some useful clarity around the areas which can tend to confuse people.

In simple terms, cashflow modelling is the process of assessing your current wealth and, from this, forecasting how it will change. It takes into account both income and expenditure, helping to make clear how your finances may change in the future.

It sounds simple but there’s a lot that feeds into the process and the more information that’s used, the better the results. You should include areas, such as property wealth, investments values, fixed income and debts. Once done, you go on to calculate how your wealth will be impacted by factors like growth, inflation and interest rates over the years.

As you can imagine, this can get complicated. An effective cashflow modelling does all these calculations behind the scenes, giving you a visual representation of the information.

But how does this add value to you? Here are just seven ways it can help you be financially organised and help achieve your aspirations.

1. Project your lifetime wealth

Cashflow modelling can give you an idea of how your wealth will change over your lifetime. It can help you see which products are best for maximising your savings with your goals in mind, for instance. It can help make your aspirations seem more tangible and demonstrate how the steps you’re taking will have an impact over the longer term.

2. Analyse how money is spent

It’s a process that can also help you keep track of where your money is going too. If you want to increase your savings, it can give you an indication of where you’re able to cut back and what difference it will make. Having a visual representation of where your money is going can help you understand if your finances are in line with your priorities.

3. Insight into retirement savings and planning

When you start saving for retirement it’s likely to be decades away. As a result, workers are often unsure of how much they have saved or, if it’s enough for their retirement plans. Using a cashflow modelling tool means you can see how your pension savings are projected to grow over the years and the level of income it can provide once you’ve given up work.

4. Demonstrate the effects of varying inflation and investment returns

Inflation and returns will have an impact on your wealth. With these two important factors varying over time, it can be difficult to assess the full effect of them. By adjusting the levels of interest or return when cashflow modelling, you can start to create a picture of the different results of varying scenarios. This can be particularly useful for investments and weighing up risk with potential returns.

5. Provide a visual representation of your goals

Saving or investing with long-term goals in mind can be challenging. The small steps you take regularly towards them can seem insignificant. Cashflow modelling can give you a visual representation of how you’re progressing towards objectives. It can help them seem more tangible and give meaning to your efforts, knowing they are setting you on the right path.

6. See how life events could have an impact

Throughout life, there will be events that affect your assets. Cashflow modelling can consider these and demonstrate how they will affect your estate. For example, it can show you how receiving an inheritance, downsizing your home, or losing your partner’s pension should they die before you will impact on your wealth and lifestyle. You can’t always predict what will happen but cashflow modelling can help you prepare.

7. Plan your legacy

It’s difficult to plan your legacy without knowing exactly how much your assets are likely to be worth when you pass away. Cashflow modelling can give you a projection of your estate at different points of your life, allowing you to plan more effectively. You can also see how other decisions, such as needing long-term care, would have on the inheritance you leave behind for loved ones.

The importance of keeping cashflow modelling data up to date

To reap the full benefits of cashflow modelling, it’s imperative that the date used is kept up to date. The forecasts is only as good as the information it is based on. Working from previous cashflow models could mean your decisions are based on inaccurate assumptions and projections.

To get the best results from cashflow modelling, you should provide an accurate, recent picture of your wealth. In addition, it should reflect current wider influences, such as interest rates and stock market performance. Therefore, keeping the information the process uses fresh is vital.

If you’re interested to learn how cashflow modelling can help you, please get in touch.

by danielashby

Seven signs that your investment portfolio could benefit from a review

When did you last reviewed your investment portfolio? It can seem like a daunting task and one that’s easily forgotten. But it’s an important question and one that needs to be addressed to ensure your investments are on track and aligned with your personal goals.

If these seven signs are familiar to you, it may be time to arrange an investment review.

1. You can’t remember the last time you reviewed your investment portfolio

While you don’t want to constantly monitor your investments and worry about temporary market fluctuations, your portfolio shouldn’t be something you never look at either. If you can’t remember the last time you reviewed your investments, it’s a sign that it’s probably been too long.

It’s advisable to undertake an investment review on an annual basis at least, aligning with other financial planning steps that you take. A yearly timeframe gives you an opportunity to look at the long-term trajectory of your investments and still take action when necessary, to minimise negative influences.

2. Your investment objectives aren’t clear

Your investments should reflect your wider goals in life. Do you want to grow a nest egg to retire comfortably in 20 years’ time? Or are you saving for your child’s education and need access to the money in five years? Your objectives will have a big impact on how the money is invested and the level of risk you may be comfortable taking.

Reviewing your portfolio is the perfect time to think about what your objectives are and clearly define how your investments will need support these.

3. Your financial situation has changed

Over the years your financial situation will undoubtedly change. Your investment strategy should too. Receiving an inheritance, for instance, may mean you can grow the overall size of your portfolio more quickly. While an increase in salary could mean you’re willing to take on more risk with a portion of your investments. Alternatively, having retired, you may start to withdraw some of your investment to use as income and reduce the level of risk you are subject to.

Your financial situation has a direct impact on how your investment portfolio should be structured.

4. You’ve experienced a big life event

Life events will have an impact on how you view finances and investments. If, since your last portfolio review you’ve started a family, married, divorced, or retired, it’s important to look at how the event may have change the best approach for you.

Life events can influence our outlook on life and, therefore, money. It’s natural that this will affect your investment too. If your priorities have changed, it’s a good idea to see how your investment strategy continues to support them.

5. You have no idea how your investments have performed over the last year

It’s important not to get caught up in the short-term volatility that investment markets experience. It’s natural for the value of your investments to rise and fall over time. However, that being said, you should have a reasonable idea of how your investments have performed, allowing you to adjust where necessary.

Committing to a regular review of your investment portfolio means you’re aware of potential opportunities and risks and any steps you need to take as a result. It’s a process that can help maximise the value of your investments with your goals in mind.

6. You haven’t considered changes that are out of your control

While your personal circumstances and goals should be at the centre of your investment portfolio, wider changes also need to be considered. How different economies perform will influence your investment value too, as well as other factors that are out of your control. While difficult, it’s important for them to be factored into your decisions.

A portfolio review gives you a chance to consider what key factors have changed in economies you’re invested in and how this may affect your portfolio’s value. Brexit is a current example of politics influencing investment portfolios, while environmental issues are increasingly affecting company values.

7. Your portfolio is losing value over the long term

Investments are highly likely to experience dips in value as markets fluctuate. But when you take a long-term view, beyond five years as a minimum, the value should be steadily increasing. If you look at your investment portfolio and see a sustained decrease in value it may be time to reassess your approach.

While you look at value, you should also consider the amount you’re paying in fees. These can quickly eat into your returns if the service you’re using isn’t delivering value for money.

If you’d like to understand how your investments are performing and whether steps could be taken to improve the results, we’re here to offer our support. Whether or not your circumstances have changed, we can help assess if your current investment strategy is suitable for your life goals.

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

by danielashby

Why are Final Salary pension transfers increasing?

More retirees with a Final Salary pension are choosing to take their money out of schemes and transfer into a Defined Contribution (DC) scheme. But why are they choosing to give up an income that’s guaranteed for life?

A Final Salary pension, also known as a Defined Benefit pension, pays a pre-defined amount on retirement based on a set of criteria. Often the criteria is based on how long you have been a member of a scheme and your salary when leaving. Final Salary pensions are sometimes referred to as the ‘gold standard’. They’re typically generous and the responsibility to ensure the pension is paid over your lifetime falls to the scheme trustees, rather than you.

The alternative is a DC scheme, which is now more common. If you’re a member of a DC scheme, you make contributions to your pension, which are then usually invested. This may be supplemented by employer contributions and tax relief. The amount you have when you retire will, therefore, depend on the contributions made and the performance of the underlying investments.

Growing numbers leaving Final Salary schemes

Despite the certainty of income that Final Salary pensions provide their members with, more retirees are choosing to transfer out of them.

Figures released by the Financial Conduct Authority (FCA) show that between October and March 2016, 5,056 Final Salary members transferred their pension to a DC scheme. This increased sharply to 34,738 transfers during the same period in 2018; a rise of 587%.

While not all transfers are covered in the survey, the FCA estimates that it accounts for around 95% of DC contract-based pension schemes.

Why are Final Salary members transferring out?

When you’re a member of a Final Salary scheme, you have two options when you reach retirement age. The first is to take the income the scheme provides. The second is to transfer out, taking the money offered and placing it with an alternative DC pension provider. The latter is a step you can take before retirement age, but the money transferred to a DC scheme isn’t usually accessible until you’re 55.

A few, but growing number, of Final Salary schemes, will also allow you to partially transfer. This would mean you take a lower guaranteed income and receive a lump sum transferred to a DC scheme, to compensate for the portion of income you’ve given up.

The growing number of retirees choosing to transfer can be linked to two main factors:

High values: When you approach a Final Salary pension provider to transfer, they will offer you a Cash Equivalent Value Transfer (CEVT). Operating Final Salary schemes is expensive for the pension trustees, and as life expectancy has increased, so has the cost of meeting responsibilities. As a result, many Final Salary schemes have been closed to new members and high CETVs are being offered to encourage existing members to leave. It’s now not unusual to receive a CETV that is 30 or even 40 times higher than your expected annual income. With such high sums available, it’s easy to see why some are tempted to cash out.

Pension Freedoms: In 2015, the government announced the biggest shake-up to pensions in decades with new Pension Freedoms. These changes aimed to provide more flexibility for those drawing an income from a DC pension, reflecting how retirement and lifestyles have evolved. From the age of 55, DC pension holders can now choose to access all their pension savings if they wish (although usually, only the first 25% is tax-free). They could also choose from purchasing an Annuity, providing a guaranteed income for life, or using Flexi-Access Drawdown, where money can be withdrawn from a pension as and when it’s needed.

While transferring out of a Final Salary pension does offer you more freedom with how you access your pension, as well as potential Inheritance Tax benefits for passing on your pension when you die, there are some downsides to consider:

• You’ll be giving up a guaranteed income: The impact of giving up a guaranteed income for life shouldn’t be underestimated. It gives you security throughout your retirement. You won’t have to worry about how investments perform or running out of funds in your later years. A lot of people underestimate their lifespan too, which is important to consider, as they may run out of DC pension income.
• You will need to account for inflation: The income provided by a Final Salary scheme is usually linked to inflation. This means that your spending power is maintained over time. If you choose to transfer out, you’ll need to ensure that you’ve considered how inflation will affect your income over the course of your retirement.
• You may also be giving up other valuable benefits: Depending on your personal circumstances, a Final Salary scheme may also offer other important benefits. These could include a pension paid to support a spouse, civil partner or dependent should you pass away.
• You’ll need to take responsibility for investment performance: With a Final Salary pension, the trustees are responsible for investment decisions and ensuring they can meet obligations. If you choose to transfer out, you’ll need to take on that responsibility and poor investment performance or financial decisions would impact the income available to you.

One detail to remember when deciding whether to transfer a Final Salary pension is that it’s final. Once you’ve left a Final Salary scheme, you won’t be able to reverse your decision. It’s therefore important to weigh up your options carefully. If you’d like to discuss your Final Salary pension and how transferring out would affect your finances, please contact us.

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.

by danielashby

Seven New Year resolutions to improve financial security

With New Year just around the corner, it’s a good time to think about your future in terms of your financial security. Making a few key changes in 2019 which turn into a good money habits can set you on the right path and positively impact you for the rest of your life.

With that in mind, here are some financial resolutions which could improve your prospects.

1. I will keep a spending diary

A diary of where your money is going is an effective way to help tackle any overspending concerns. It’s all too easy to forget about small purchases using contactless or by shopping online. Detailing your expenses and putting these down on paper means you can keep track of where your money is going. If you prefer tech, there are plenty of apps and tools which can help at the touch of a button.

Of course, a diary alone isn’t enough. You should also be looking at where you can cut back, if necessary, and how to make the most of your money.

2. I will start/grow my emergency fund

If you don’t already have an emergency fund, starting one can significantly boost your financial security. The recommended amount to have in an easy-access savings account is between three and six months’ salary. This means you have a buffer to overcome financial shocks, from an unexpected bill to losing your job.

If you already have six months’ salary saved, it may be best to start looking at alternatives. Low interest rates likely mean your money is losing value in real terms. Alternatives to consider are investments or a fixed rate savings account where your money is locked away for a defined period.

3. I will reduce the amount of debt owed

Debt can mean your outgoings grow, and much of the repayment is likely to be paying off interest rather than the money borrowed. If you’re at a stage in your life where you still have debt, such as credit cards or car finance, making a commitment to reduce this can vastly improve your financial security.

Overpaying by even a small amount can cut down the total amount of interest you’ll pay significantly. Reducing or eliminating debt altogether in 2019 can help put you on the right path for the future.

4. I will increase my pension contributions

Giving your pension contributions a regular monthly boost can help you reap the rewards when you retire. As the money is usually invested, you will hopefully see returns on your efforts that outweigh inflation and interest. Plus, you may also benefit from employer contributions and tax relief.

If you pay into a Workplace Pension already, be aware that minimum auto-enrolment contributions will automatically increase in April 2019.

5. I will overpay my mortgage payments

A mortgage is one of the biggest financial commitments. It’s not unusual to be paying your mortgage 30 or even 40 years after the purchase. As a result, the accumulated interest over the years is significant. Making regular overpayments or paying off lump sums can cut down the total interest paid and means you’ll own your home sooner.

It’s a resolution that can have more immediate benefits too. Paying extra means you’ll own more equity in your home, which typically means you’ll be able to access lower interest rates when remortgaging. Be sure to check your terms first though, some lenders may charge you for overpaying.

6. I will start/grow my investment portfolio

Investing can be an excellent way to grow your money. Once you’ve built up a savings account, putting regular amounts into investments can mean the opportunity to generate returns above interest rates. Ideally, you should be investing with the view of holding stocks and shares for at least five years, this helps to smooth out dips in the market.

When you’re investing, be sure to consider the level of risk you’re willing to take and how well-placed you are to withstand potential losses.

7. I will create a long-term financial plan

Don’t just focus on the immediate financial goals this year, look at your wider objectives too. The steps you take now could help them turn them from a dream to a reality. Thinking about what you want to achieve should be your first step. From here you can start to create a strategy that’s aligned with what you want.

This is an area where financial advice can be invaluable. We’ll help you understand how your current finances are suited to your goals and the steps you should be taking to secure the future you want.

If you’d like help getting to grips with your finances in 2019, please contact us. We’d be happy to discuss steps that could improve your long-term financial security and how we can add value to your plans.

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 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.

by danielashby

More people are choosing equity release; but is it a good idea?

Homeowners and retirees looking to boost their incomes are increasingly using equity release products.

Giving homeowners a way to access the wealth tied up in their property, equity release can be an attractive option. It can give you a lump sum or pay over several smaller amounts. There are two main equity release options:

1. Lifetime mortgage: This is where you’d take a mortgage out on your home but retain ownership. You can choose to make repayments on the loan if you have enough income. Alternatively, you can allow the interest to accumulate. The loan amount, plus any interest incurred, will be paid when you die or move into long-term care.

2. Home reversion: This is where you sell a portion of your home and receive money in return. You have the right to continue living in the property until you die. The portion of the home you own will remain the same, even if the property’s value increases or decreases.

Equity release is proving a popular option during retirement. In fact, £11 million of property wealth is withdrawn every day to support later life finances, according to the Equity Release Council (ERC). The number of equity release products sold has grown by almost a quarter in the last year alone.

While equity release can give your finances a significant boost in retirement, there are drawbacks to consider before you start searching for a product. Some of the disadvantages of using an equity release product to weigh up are:

1. The debt can increase quickly

Depending on the type of equity release product you choose, the interest that is accumulating can increase quickly. This is a particular concern if you choose a Lifetime Mortgage and are not making any repayments on the loan.

The compounding effect means that what starts off as a reasonable amount of interest can rise very quickly. It may significantly affect the inheritance you leave loved ones or outgoings if you begin making repayments.

2. It may affect means-tested benefits

If you currently meet the criteria for means-tested benefits, be aware that taking a lump sum out of your home could affect your eligibility. This isn’t always the case but, in some circumstances, capital that you hold will impact on the support you receive from the government.

3. It will impact the inheritance you leave

If you’ve been planning your finances to leave an inheritance to your loved ones, your home has probably made up a big part of that. Using equity release will impact what you can leave behind. With both types of equity release products, there are options to ringfence a portion of your home’s value to ensure that it’s passed on. However, this will affect the amount you can access.

4. It’s final

Once you’ve released equity from your property, there’s no going back. It’s a final decision that means you’ll be unlikely to access wealth from your home again, even if property prices rise. It may also restrict future opportunities, such as moving home. As a result, it’s important to weigh up the pros and cons before you go ahead.

What are the alternatives to equity release?

If equity release isn’t the right option for you, there are alternatives for you to consider.

• Downsizing: One of the most common ways to unlock wealth from your property is to downsize. Purchase a cheaper home and you could continue to own a house outright as well as having additional cash to fund your retirement aspirations. There are, of course, considerations to factor in here too, including any emotional attachment you may have to your current home and Stamp Duty.
• Use other assets: You might be surprised at how other assets can fund your retirement goals. Don’t jump into equity release without considering how other assets, such as savings or investments, can be used. This is an area that financial planning can help you with, demonstrating how decisions will have an impact on your finances.
• Ask loved ones for support: Depending on their situation, your loved ones may be in a position to offer you financial support if it’s needed. If you’re planning on leaving your home to children or grandchildren when you pass away, letting them know of your intentions is a good idea. They may be able to provide you with the cash needed instead of using equity release, particularly if your home will form part of their inheritance.
• Traditional mortgage: There are other ways to take money out of your property, including using traditional remortgaging products. You’ll need to prove that you can meet repayments and choose a provider that will be open to lending to a retiree but it’s a route that’s worth considering.
• Take up part-time or consultancy work: Giving up work on a set retirement date used to be the norm. But more retirees are now choosing to continue some form of work into their later years. It’s not an option that will suit everyone but looking into part-time or consultancy working opportunities could help you achieve your retirement goals.

Before you move forward with any decision, it’s important to understand what all your options are and where your finances stand. Financial planning can help you make the right decision with your goals and assets in mind, you may be surprised at the alternatives to equity release. Please contact us to discuss the ways you could fund your retirement plans.

by danielashby

The protection products to consider when you take out a mortgage

Taking out a mortgage is likely to be one of the biggest financial commitments you make. As a result, you may be considering taking out a protection product to ensure you can continue to meet payments should the unexpected happen.

It’s a common misconception that protection products don’t pay out. Figures from ABI show in 2017, a record £5 billion was paid out in protection claims and almost all claims (97.8%) were paid. Insurers pay out nearly £14 million every day to those that may not have otherwise been able to make their mortgage payments or other financial responsibilities.

If you’re worried about how you and your family would cope if your income suddenly stopped, a protection product can give you peace of mind.

There are several different types of protection products available to choose from. Which one is right for you will depend on what your concerns are and your circumstances. Among the options available are:

Mortgage Protection

Mortgage Protection is designed to cover the cost of your mortgage for your loved ones should you die.

The policy will pay put a pre-defined lump sum on death. Mortgage protection covers a set term and amount, as a result, you can pick a product that suits your needs and your mortgage. It means that should the worst happen, you know that your family won’t have to worry about paying the mortgage, providing them with financial security during what is already a difficult time.

Critical Illness Cover

Again, nobody wants to plan for being too ill to work. But the reality is that it could happen.

Critical Illness Cover will pay out if you’re diagnosed with a specific medical condition or injury that’s detailed in your policy. ABI estimates that one million workers are unable to work due to illness or injury every year, affecting their financial security. The cover will pay out a lump sum, after which the policy will end.

It’s important to be aware that Critical Illness Cover doesn’t cover every illness. Always check the terms of any policy before signing up.

Income Protection

Income Protection can provide you will a stable source of income should you no longer be able to work due to illness or injury. They typically cover most illnesses that leave you unable to work, rather than defined illness like Critical Illness Cover.

Payments received from Income Protection products are tax-free and are usually a percentage of your earnings: between 50 and 70% is standard. Income Protection products will usually continue to make monthly payments until you’re able to go back to work or, in some cases, until you retire.

Depending on your needs, you may find the ongoing payments of Income Protection are better suited to your circumstances than a lump sum.

Many policies will have a deferred period, sometimes for several months, before they begin to pay out. Therefore, it’s important to ensure you have an emergency fund that you can dip into to keep you going until the payment begins. In some cases, the deferred period can be useful. If, for example, your employer pays sick pay, you can opt for an income protection product that will align with this.

Policies can vary between different providers significantly. As a result, it’s important to make sure you fully understand what is covered and other key factors, such as fees and the deferred period.

Choosing a protection product can feel overwhelming with so much choice on the market and numerous factors to consider. We can help you make sense of the protection products you could benefit from. Please contact us to start the process.

by danielashby

10 years on from the financial crisis: How has it affected finances?

It’s still talked about today and mentioned in the headlines, but the financial crisis happened a decade ago. How has it affected finances? And what can we learn from it?

The 2008 global financial crisis is often referred to as the worst financial crisis since the Great Depression in the 1930s. It began with the subprime mortgage market in the US in 2007 and developed into a banking crisis, with investment bank Lehman Brothers famously collapsing in September 2008. Excessive risk-taking by some banks meant the crisis reached global proportions.

Governments implemented fiscal policies and undertook bail-outs to prevent a possible collapse of the financial system. Here in the UK, the government announced a £37 billion rescue package for Royal Bank of Scotland, Lloyds TSB and HBOS, the economy experienced a recession for five quarters, and an austerity programme was adopted by the government.

In his most recent Budget, Chancellor Philip Hammond may have announced that austerity was over, but some figures suggest the 2008 financial crisis is still having an impact.

What impact did the financial crisis have?

The financial crisis affected many areas of the UK economy. These five may have impacted your personal finances too:

1. Salaries: When you just glance at average wages and salary growth over the last ten years, it often looks like we’re better off. However, inflation has eroded buying power and, in many cases, mean people have less income in real terms today than they did before the financial crisis.

In fact, analysis conducted for the BBC found that people’s wages are 3% below what they were a decade ago. The research suggests that the average wage in 2008 was £24,100, falling to £23,300 in 2017. The younger generation has been among the hardest hit, with a decline of 5%.

2. Interest rates: In response to the recession, the Bank of England decreased interest rates. At the end of 2008, the base rate was 3%. However, this fell sharply to 0.5% between then and March 2009. The interest rates have been at a historical low ever since and have only begun to climb again in the last 12 months, now sitting at 0.75%.

How this has affected you will depend on your circumstances. If you have cash in savings accounts it’s likely it’s been decreasing in value in real terms, as inflation has outpaced interest rates. However, the low interest rates have had a positive impact on some. If you’ve borrowed money, for example, a mortgage or loan, it’s likely you’ve benefitted from rates remaining low.

With two small rises in the last 12 months, it’s expected that interest rates will slowly begin to climb again. But they still have some way to go before they reach pre-financial crisis levels.

3. Stock markets: The impact the financial crisis had on stock markets support the long-held wisdom that staying invested throughout volatility is important. Many people that held investments between 2008 and 2009, saw the value of their stocks and shares fall. However, overall the market did recover and, ultimately, delivered returns in the long term.

The FTSE 100, an index that measures the performance of shares of the 100 largest companies listed on the London Stock Exchange, for example, had a share price of 6,202 on 11 January 2008. By the 20 March 2009 it had fallen 3,842.85; a significant fall for investors. But those that continued to hold their shares will have seen the value rise again. As of 9 November 2018, the FTSE 100 price stood at 7,105.34.

With the markets experiencing some volatility recently, the recovery since the financial crisis demonstrates that, in many cases, holding investments long term is the answer.

4. Property: One of the sector’s hit by the financial crisis was the property market. Prior to the financial crisis, the UK had experienced a period of rising house prices. However, the trend quickly changed in 2009. Official figures show the 12-month percentage change to February 2009 was -15.6%. It caused concern for many homeowners and even left some with negative equity, especially those with high LTV (loan-to-value) percentage mortgages.

The dip was relatively short-lived, and prices began to climb again later that year. Since then, there have been peaks and troughs, but when you look at the overall trend, they’re increasing. As of September 2018, the average house price in the UK is £253,554, according to the UK House Price Index. In September 2009, it was £165,134.

5. Regulation: Perhaps one of the most lasting effects of the financial crisis has been the regulation put in place in an attempt to prevent a similar situation happening in the future. Lending institutions have been forced to take on more responsibility to ensure those they’re lending to can afford to meet repayment obligations.

One sector where this is evident is the mortgage industry. When you apply for a mortgage, banks must take steps to ‘stress test’ your situation to see how likely you are to cope should interest rates begin to increase. You’ve probably heard that mortgages and other forms of borrowing are harder to access now, this is the reason why, although it is becoming easier.

While the UK has slowly recovered from the financial crisis and continues to do so, there are still some effects being felt in terms of personal finances and the wider economy. When you look at the uncertainties present now, such as Brexit, and consider how your money will be affected it can be a concern. If you’re worried about your money, please contact us. We create bespoke strategies with your goals and personal circumstances in mind.

by danielashby

Could some of your retirement savings be lost?

When you think about how often you’ve moved jobs or home, it’s not surprising that it’s common to lose the occasional important document. But the number of lost pensions could make a huge difference in achieving retirement aspirations for pensioners who have lost them.

The UK has almost £20 billion in unclaimed pensions, research from the Pensions Policy Institute (PPI) has revealed.

PPI estimates that there are as many as 1.6 million unclaimed pensions from an analysis of the market. The figure could be even higher once public sector pensions are factored in.

With the total value of these unclaimed pensions at £19.2 billion, the average value of an individual lost pension is £12,125. While it’s not a huge amount, it could provide a welcome boost to retirement plans. There’s likely to be some pots that hold significantly more than the average value too. Lost pension pots could mean you’re unable to achieve some of your retirement dreams, despite having the cash to do so.

A growing problem

The issue of lost pensions is likely to grow unless action is taken.

The research found that people typically lose track of their pensions when changing jobs or moving home.

Nearly two-thirds of UK savers have more than one pension. However, the introduction of auto-enrolment and workers moving jobs more frequently means the number of pensions an average person holds is likely to rise. Over their lifetime, the average person has around 11 jobs. If each of these offers a pension, it’s a lot of different schemes to keep track of.

On top of this, younger generations are more likely to move home frequently, partly due to the rising trend in renting over owning a home. Forgetting to update the address that a pension provider holds means it’s easy to lose touch with your retirement savings.

Dr Yvonne Braun, Director of Long-Term Savings and Protections at the Association of British Insurers (ABI), said: “These findings highlight the jaw-dropping scale of the lost pensions problem. Unclaimed pensions can make a real difference to millions of savers who have simply lost touch with their pension providers.

“The industry has stepped up its efforts to reconnect savers with their lost nest egg, developing a new framework launched earlier this year to help pension providers trace ‘gone-away’ customers more consistently. But industry efforts can only go so far; we need a radical digital solution to cope with the way society is changing, or the problem will get worse.

“It is important that the government stands by its promises to take forward the Pensions Dashboard.”

What is the Pensions Dashboard?

The Pensions Dashboard project aims to make it easier to keep track and understand how your pensions are growing.

Your retirement income rarely comes from one source; making it difficult to keep track of everything. It can also make it challenging to effectively plan your retirement too. The problem comes because we tend to look at each pension separately (or forget about some of them altogether). However, for effective financial and retirement planning, you need to look at the bigger picture.

The proposed Pensions Dashboard will let you see all your pension savings at the same time through an up-to-date online portal. As a result, it will be easier to get a snapshot of how your retirement savings are progressing, as well as the individual pots you’ve accumulated.

The project is still in the development phase, but it’s hoped the Pensions Dashboard will be available from 2019. In the 2018 Autumn Budget, it was revealed that the project will benefit from a £5 million boost.

What to do if you have lost pensions

While the Pensions Dashboard is a positive step, it doesn’t help you if you’re worried about lost pensions now. Here are some steps you can take to reconnect with lost pensions and remain organised.

1. Contact the pension provider: If you can recall who your pensions are with, this is usually the easiest option. You should receive statements giving an update of your pension regularly. If you haven’t received one in a while, it’s likely they have an old home address for you. Where possible have details such as your National Insurance number and pension plan number handy to speed up the process.

2. Speak to your employer: If you’ve been enrolled in a Workplace Pension, you can also contact your employer or former employer directly. If it’s run by the firm, they’ll be able to provide you with details and update your contact information. If the pension scheme was operated as a personal or stakeholder pension, they’ll be able to provide the details of who to speak to next.

3. Use the Pension Tracing Service: If you’re struggling to find the necessary details of either your pension provider or employer, the Pension Tracing Service could help. It’s free to use and searches a database of pension schemes.

4. Consider consolidating your pensions: If you find you have multiple pensions to keep track of, consolidating them may be the best option. However, there may be fees associated with this and you might also lose other benefits. As a result, it’s not the right option for everyone. Contact us today to discuss the structure of your retirement savings.

5. Keep your details up to date: Once you’ve found ‘lost’ pension funds, make sure you keep on top of details. Always let your employer and pension provider know if you move home or change your name. It means you’re easier to stay in contact with and should make sorting out any future issues much smoother.

Maintaining contact with your pension provider and tracking down any lost savings is just the first step in creating the retirement that you want. With the support of financial planning, you can align your retirement ambitions and finances. Whether you have just reconnected with old pension savings or want to review your retirement provisions, please get in touch with us.

by danielashby

Your guide to writing a will

November marks Will Aid Month. We want to take the opportunity to remind you just how important a will is and explain why it should be considered a crucial part of your financial planning.

You no doubt have an idea of what you’d like to happen to your wealth and assets once you pass away. For many, it will mean leaving it to children or grandchildren. But you might also want to leave something for other family members, friends or charity. A will is crucial for ensuring your wishes are carried out.

Should you die without a will in place, your assets will be distributed according to the Rules of Intestacy. These specify a rigid order of who should benefit from your estate. It’s unlikely that these will align with exactly what you want. This is particularly true for modern, often complex, families.

If, for example, you have children from a previous relationship, have since remarried and the value of your estate is worth less than £250,000, all your wealth will pass to your surviving partner. This could effectively disinherit your children.

Despite the importance of a will, it’s a step that many in the UK are failing to take. More than half (56%) of parents in the UK with children under 18 have no will, a survey by Will Aid revealed.

Writing a will should be a task you undertake in the context of financial planning too. With the right information, you can understand what inheritance you can leave behind. This allows you to decide how you want different assets distributing.

Thinking about your legacy with wider financial goals in mind can help give you confidence and improve financial security too. Perhaps you’re worried about spending too much during your retirement years for fear of not leaving the legacy you want behind. Financial planning can give you an understanding of how lifestyle changes will affect what you leave to loved ones.

With this in mind, these are the steps you should be taking as you prepare and write your will:

1. Value your estate

It’s hard to think about the distribution of assets if you don’t know the value of them. A good starting point for writing your will is creating an up-to-date list of what your assets are and how much they’re worth. This is an area we, as financial professionals, can help you with, as well as providing an insight into how the value might change over the years depending on your retirement decisions.

2. Deciding on beneficiaries and distribution

Next, you should spend some time thinking about who you’d like to inherit your wealth. It’s likely there’s more than one person you want to leave an inheritance to. Once you have a list of beneficiaries, you’ll need to consider how you want your estate to be distributed.

You should be as specific as possible here. While you can allocate each person a portion of your estate, it may be a complicated process to distribute your estate depending on your assets. For example, if three children equally inherit a property, they’ll have to come to an agreement as to how they’ll proceed. Perhaps you have some jewellery you’d like to go to your granddaughter or a property that will suit a son with a growing family. If you have a specific request for items or assets, make it clear.

3. Assess Inheritance Tax liability

Do you know if your estate will be liable for Inheritance Tax (IHT)? If your estate’s value is more than the Nil-Rate Band and Residence Nil-Rate Band for IHT, it may change how you use and distribute your wealth now.

The current Nil-Rate Band is £325,000. If your estate is worth less than this, no IHT will be due. If you’re passing on your main home to children or grandchildren, you may also be able to take advantage of the Residence Nil-Rate Band. This is currently set at £125,000, rising to £175,000 in 2020/21.

There are several steps you can take to reduce IHT liability or help your loved ones cover the bill they may face. If you’d like to understand what IHT may be due when you pass away, please contact us.

4. Consider a charitable donation

Many people choose to leave a charitable donation as part of their legacy. If you’ve been a lifelong supporter of a cause, naming charities in your will can be an excellent way to continue this. As with all beneficiaries, you should be as specific as possible about what you want a charity to receive from your estate.

Leaving a charitable donation can have IHT benefits too. Leaving 10% or more of your estate to charities means your IHT rate will be decreased from 40% to 36% if your estate is liable.

5. Note other wishes

While the main aim of a will is to ensure your estate is distributed in line with your wishes, it can also be used to cover other areas.

If you have dependents, for example, you can name a guardian to care for your children until they’re 18, as well as someone to look after their inheritance. You may also choose to make your preferred funeral arrangements known, though this would not be legally binding.

6. Choose executors

Executors are the people who deal with distributing your estate. It’s a good idea to choose more than one executor; you can appoint up to four and those chosen can also inherit from your will.

An executor should be someone you trust and who is able to take on the responsibility of the role. It can be a friend or family member. Alternatively, you can appoint a professional executor, such as a solicitor or an accountant. A professional executor will take their fee from your estate and they can be a good choice if your estate is complex.

7. Writing the will

With your legacy plans set out, it’s time to write your will. There are several options when doing this.

You can choose to make your own will, but you should keep in mind it’s a legal document that needs to be written and signed correctly to be valid. Often, taking advice from a regulated solicitor that specialises in wills and probate is the best course of action.

Whichever option you choose, make sure your will is valid. Your will must be in writing, signed by you and witnessed by two people. Beneficiaries should not act as witnesses, and, where possible, neither should executors.

8. Storing and updating

Once you’ve written your will, there are two points to remember. The first is to store it in a safe place, this could be in your home, with a solicitor, bank, or a Probate Service, and ensure your executors know where it’s kept.

Secondly, don’t write a will and forget about it. Circumstances can change considerably; your wishes today can be very different to those you will have in a decade. It’s good practice to review your will every five years and after big life events, such as getting divorced, receiving an inheritance or having children.

While you’re writing your will, there is another task you should tick off; naming a Lasting Power of Attorney (LPA).

An LPA gives someone you trust the power to make decisions on your behalf should you become too ill to do so. An LPA can only be written while you’re sound of mind. As a result, it’s an important step to take before it needs to be used. The combination of a will and LPA can help make sure that your wishes are carried out through your later years of retirement and once you pass away.

To discuss your finances and the legacy you leave loved ones, please contact us today. We can help you put the figures in context with your wider aspirations.

by danielashby