A significant 18th birthday present

If you have a new baby, saving for their 18th birthday may not be at the top of your to-do list, but with generational wealth planning becoming more topical and the advantages of starting early more widely recognised, it may be worth moving it up there.

Parents and grandparents often wish to start a savings account for a new member of the family, typically in an account specifically badged for children, a savings account of their own which is ringfenced for the child, or in a Junior ISA (known as a JISA).

The JISA was introduced in 2011 and since then the number of applications has grown steadily each year. HMRC figures have revealed the number of accounts increasing from 794,000 in the 2016–17 tax year, to 907,000 during the 2017–18 tax year*. There are two types: the cash Junior ISA and the stocks and shares Junior ISA. 

 A child can have one or both types and in the 2019 to 2020 tax year, the savings limit is £4,368. The main advantage of the JISA over a regular savings account is the ability to save money tax-free and long-term. The tax exemption may also be attractive to parents who have used all the tax-free savings allowances of their own in an adult ISA.

Another appeal may be the money being locked in until the child is 18, stopping either the child or parent, dipping into it. When the child reaches 16 they can become the registered contact for their JISA but cannot take any money out of it until they turn 18.

Some cash JISAs also currently offer better rates of interest than a cash ISA**. Additionally, there is the opportunity for 16 and 17-year-olds already holding a JISA to open a cash ISA as well giving them the option to save up to £24,368 each year for those two years.

Start saving as soon as you can

The accumulated interest that builds up over 18 years rather than say 15 or 10 makes a big difference to the amount available to the 18-year-old so it pays to start saving as soon as possible.

Cash or stocks and shares JISA?

This depends upon when you start saving. History shows us that long-term investments in the stock market produce a better return than relying on the interest paid in a cash account. So, if you start saving into a JISA soon after the birth of your child, and they wish to take the money out at the age of 18, there is time to weather a downturn or two in the stock market, plus hopefully enjoy some significant growth. However, if you leave it until later to start, a more cautious approach may be appropriate

Investing for your children’s future is key to your wealth management strategy and there are tax incentives to be explored. To find out more about our savings and investment services go to https://www.lighthousegroup.plc.uk/services/savings-investment/ or call 0800 085 8590 to book a complimentary initial consultation.

Important Information The value of your investments can go down as well as up, so you could get back less than you invested.

Life after work – Preparing for retirement

Getting the most from your retirement requires careful planning, both in terms of what you will do with your time, as well as how you will afford it. It is a complete change of lifestyle which some take to easily, but for others it is a harder adjustment. Holidays may give you a taste of having more free time, but why not use them as an opportunity to really think about structuring the years ahead?

How can I prepare for a comfortable retirement?

Preparing for retirement should start when you start working. With auto-enrolment into workplace pensions now standard, more of the working population have a pension. But that will not necessarily be enough to fund your retirement and shouldn’t stop you looking at other ways of saving and seeking out the most tax-efficient ways of accumulating wealth. 

As you go through your working life your financial goals change, as does your discretionary income and a priority should be to start a financial plan that lists your assets such as pensions (state and private), ISAS, savings and property and predicts how much income they will provide for your retirement. This can be complex and it is becoming usual to enlist the help of a financial adviser who will work with you over a number of years to help you plan and come up with solutions to ensure you receive your full potential retirement income.

How will I spend my time?

As well as planning your finances, think about how you want to spend your time. After a busy career, free time can be daunting for some people, so think about hobbies you might want to pursue. Remember that you will need to maintain social contact and keep up with new technologies and a new circle of friends with similar lifestyles to yours can help with both these things. You may plan to explore a new environment by moving house or travelling. Don’t let the sudden change come as a shock – retirement can be emotionally upsetting and needs as much thought as your finances.

Can I afford to do the things I have always dreamt of?

It is one thing to decide when you want to retire and what you want to do, another to be able to afford it. A financial adviser can help you work out if the two are compatible. If you find there is a shortfall when you compare your expected income against expenses, there are some options available to you. You may choose to work longer – retiring later means that your pension pot won’t need to last so long and you may get higher monthly payments. Take a look at all your monthly expenses and cull any unnecessary subscriptions and memberships.  

You might want to look at other ways of organising your retirement income. Since 2015 there has been greater freedom in how you can take your pension funds, including as a lump sum.  This might suit a specific retirement goal, but must not be done without first taking financial advice and you should be very careful of scams which offer unsolicited advice on how to invest your money. 

There are many ways to structure your retirement income and it is never too soon to start planning it. Important Information: A Pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Life protection and insurance – The unexpected can happen

When your family is in reasonable health, you and your partner both have good jobs, your mortgage is being paid off and you are even managing to save every month, you have every reason to congratulate yourself. You may even have a couple of life policies, or a workplace death-in-service scheme that makes you think you have every worst-case scenario covered.

But have you ever really checked that it is enough? Have you even discussed the repercussions of serious illness or death with your partner? Have you thought about the impact of losing your job or simply moving to a new job? While times are good it is difficult to imagine that this might not always be the case and it’s hard to make life insurance a priority as you would prioritise travel insurance when going on holiday. 

Reasons not to address the issue of life protection and insurance include a disinclination to talk about death or a life-changing condition, a lack of understanding of this sort of insurance, a feeling that you won’t personally benefit, you can’t afford it or that you already have sufficient savings.

The sad reality is that bad things can happen and illness or redundancy might mean that mortgage payments become a problem or the long-term care for a member of your family quickly erodes your savings. 

Getting professional advice from someone who can see the big picture is a good idea. While you may be able to do your own research and buy a policy online at an attractive rate, it is hard to know if this is going to be enough and if you have covered all eventualities. At Lighthouse we have a team of protection and insurance advisers who can help you with this. We can introduce you to an expert who will assess your current situation, discuss your future goals and point out the implications of events such as a critical illness and how it could affect your ability to look after your family. They will review your finances and then suggest affordable and appropriate protection options.

We know it isn’t much fun as a topic for discussion, but consider the peace of mind you will have from knowing that you have safeguards in place should the worst happen and appreciating that you can afford to manage it.

Important Information: Some protection products, such as Whole of Life or Long-Term Care, may include an investment element. The value of your investments can go down as well as up, so you could get back less than you invested.

Find out more about our protection and insurance products here https://www.lighthousegroup.plc.uk/services/protection-insurance/ or call 0800 085 8590 to book a complimentary initial consultation.

 

 

 

Is equity release a conventional way to fund retirement?

Is equity release a conventional way to fund retirement?

Just a few years ago the answer to this question would probably have been no, but with equity release products now some of the most highly regulated in the UK and with the country’s ageing population looking for ways to raise money in later life it is not surprising that the industry is growing in terms of the number of products.

The Autumn 2018 Market Report from the Equity Release Council (ERC), highlighted that the equity release sector has doubled in size since the first half of 2016 and that property is now recognised by some as being vital for their retirement. As the value of property has increased in parts of the country, so retirement ages have also risen creating a need to release cash from the property in order to fund anything from home improvements, debts, supplement retirement income, or to support children and grandchildren as they buy homes of their own.

How can I release money from my home?

As long as you are over 55 and own your home, there are two ways you can release money without having to sell your property or make monthly repayments. The first is a lifetime mortgage which allows you to borrow money against the value of your home, which is repayable with interest when you die or move into long term care. The second is known as a home reversion plan and it gives you access to some or all of the value of your home, allowing you to live in the property rent-free for the rest of your life.

If you are at this stage in life and find yourself property-rich but cash-poor, it may make sense to explore these options. It is a big decision to make and not one you should make alone. Talking to one of our professional financial advisers will give you the assurance that you are receiving all relevant information and industry safeguards. Your adviser will thoroughly review your financial circumstances and be able to advise whether equity release is suitable for you. If it is, they will discuss the most appropriate way of releasing your equity and address any concerns you may have such as Inheritance Tax implications. 

Important Information: Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. Equity release may not be right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate. Check that this mortgage will meet your needs if you want to move or sell your home or want your family to inherit it. If you are in any doubt, seek specialist advice.

Lighthouse is a member of the ERC and has a team of specially qualified Equity Release advisers.

Find out more here Equity-Release or call 0800 085 8590 to book a complimentary initial consultation.

Auto Enrolment increase in contributions

Don’t automatically stop saving

Since 2012 an additional 10 million people in the UK have started saving into a pension via their automatic enrolment workplace pension scheme. This is thanks to the Government initiative to make it compulsory for employers to contribute into a pension plan for all their employees earning above the threshold figure of £6,032. The minimum contributions of employers and employees will rise on 6 April 2019. Both sound like good news and they are but they shouldn’t stop you thinking about your retirement and working out if you need to save more.

The facts

The minimum contribution to a workplace pension has gone up from 5% to 8% of your salary. You may be lucky and find that your employer has decided to pay the whole 8%. Legally, however, they only need pay 3%, leaving you to pay the outstanding 5%. This is calculated by combining the total of your regular wages, commission, overtime, sick pay and maternity/paternity pay. It is taken from your pay before it is taxed so you effectively get full tax relief on the sum.

You are automatically enrolled if you are at least 22 and under the State Pension age and are working in the UK under a full-time, part-time, permanent or temporary employment contract. If, however, you are self-employed you will not have access to automatic enrolment into a pension scheme and while the Government is considering plans to help this group save for retirement, there is nothing formal in place yet. If you are self-employed it is important to take full control of your financial planning.

But will it be enough?

Even if you have a workplace or an independently sourced pension don’t assume it will be sufficient to see you through retirement. We have a longer life expectancy and the State Pension age has increased with no guarantee that it won’t again. And you shouldn’t presume that your state pension will be sufficient to live on.

The age at which you start to contribute to a plan makes a difference, if you start your saving early in your working life the number of years plus the accumulated interest will provide you with a healthier sum than if you are only auto enrolled towards the end of your career.

It literally does pay to take an active interest in how your pension is performing and by seeking professional financial advice.

How are you? Really?

How thinking a little differently could make a real difference to the income you get from pension savings you have outside a public sector or other defined benefits scheme.

“How are you?” “Good” or “Fine” you’re likely to reply. That’s because we all know that “How are you?” is an alternative greeting to “Hi”. We know that it’s usually said with nothing more than a passing interest in your well-being or health. And that’s OK. Imagine if you were to launch into a long tale about being tired, wheezy with asthma, trying to lose weight, taking cholesterol medication and a history of heart disease. It’s just not in our psyche or our reserved British nature.

However, sometimes there’s a real benefit to talking about your health. You just might not realise the importance. It could make a big difference if you’re approaching retirement and considering converting your defined contribution pension pot (pension savings outside public sector schemes where benefits you receive are not linked to your salary) into an annuity for a guaranteed income for life, or drawing down income.

So what are we suggesting?

First, think about ‘personalising’ or ‘tailoring’ your income. Forget about whether you ‘qualify’ for increased annuity rates due to your health.

Guaranteed income for life

What does this really mean? Generally, when you look at buying a guaranteed income for life (an annuity) you would be asked about your health to see if you are ill enough for an ‘enhanced’ or ‘impaired’ annuity. If you qualified, it would mean your income would be higher.

But, like everything these days, underwriting moves on as life expectancy predictions change and medical science continues to improve. The scope of personalisation “underwriting” is now so broad that it’s becoming almost impossible to second guess if someone might ‘qualify’ or not.

It isn’t just about whether you have a serious condition such as heart problems or cancer. It can also cover more everyday things such as raised blood pressure, where you live, smoking, alcohol intake and diabetes to name but a few. The idea of qualification is becoming redundant. Everyone can now get their own ‘personalised’ rate.

If we think about it at its simplest, everyone has a height and weight. Everyone is likely to have a postcode. Therefore, everyone can obtain their own personalised underwritten annuity rate. You don’t need to be seriously ill to get a higher guaranteed income for life.

This means that if you’re thinking of buying an annuity you shouldn’t be settling for anything ‘standard’, off-the-shelf or ordinary. Instead, think about having your plan tailored to your exact specifications. It should be bespoke. It could make quite a difference to the amount of income you receive.

Underwriting for drawdown reviews

People have more choice in how they use their money in defined contribution pension schemes, with drawdown becoming the popular choice. Understandably, flexibility is often high on their wish list. The tricky part though is knowing whether you’re taking too much out of your pot when you need income.

Obtaining a personalised annuity quote will provide an example of the level of guaranteed income for life you could receive. This can then be used as a benchmark for the income you’d like to take out of your drawdown plan. It will help you determine if your investments are providing the returns you need, and if the income you are taking is sustainable.

Asking your financial adviser to arrange for you to be underwritten at each drawdown review or annuity purchase will ensure that you’re getting the most out of your retirement, and have a truly tailored retirement income solution.

Act now so as not to leave an inheritance tax bill

Helping relatives

If you are likely to help relatives with their finances as they get older and less able to cope, you should arrange to have a Lasting Power of Attorney. This will allow you to take decisions and act on their behalf. It is more straightforward if you have the authorisation of the person on whose behalf you will be acting, so it makes sense to arrange a Power of Attorney before it is actually needed.

You can’t take it with you!

If you are in the lucky position of having more money than you need for the rest of your life, start giving it away to whoever you would like to benefit from it. By doing this in a carefully planned way, with the help of a professional financial adviser, you may be able to eliminate any inheritance tax payable when you eventually pass away. 

Keep your money and reduce inheritance tax!

Putting some of your savings into investments that qualify for Business Property Relief, such as shares listed on the Alternative Investment Market (AIM), can help reduce inheritance tax as, once you have held them for two years, they are exempt from the tax. AIM shares can be held in ISAs, with the result that you can reduce the value of your estate and continue to benefit from income and growth tax-free without giving them away. 

You could consider using a specialist discretionary fund manager or invest via one of the specialist funds that are now available. However, investments in unquoted companies and those quoted on AIM are considered to be high risk and it may be difficult to sell them quickly. It is important that you understand the risks that you are taking when making such investments and you should take professional financial advice before acting.

The value of your investments can go down as well as up, so you could get back less than you invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice which contains no investment element is not regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate Will writing.

How to save for a future free from money worries

To be able to enjoy a comfortable retirement later you need to start saving now. Here are some tips for a future free from money worries.

Money to spare? Top up your pension

Making contributions to your pension fund is the most tax-efficient way of saving, as contributions benefit from income tax relief at your highest rate.

Rather than guess, you should work out what you have already accumulated, how much income this might give you when you retire and how much income you are likely to need to be financially independent. Then you will be able to work out whether you need to save more. It is best to ask a financial adviser to help you work out these figures, as calculating them is complex and you need to make sure they are as accurate as possible.

If you do need to save more, in most cases you should consider making additional contributions into your employers’ scheme or a personal pension. You pay contributions out of taxed income, but the government tops up your contributions by the amount of tax you paid on them. For instance, if you are a basic rate taxpayer, for every £80 you pay in the government pays in an additional £20.

Check your pension at least once a year. If you have personal pensions or are a member of schemes that are based on defined contributions (ie which are not based on defined benefits such as final or career average salary), perhaps from previous jobs, you should make sure that the funds are invested in a way that matches your objectives (see making your money work hard section). To do this you should consult a professional financial adviser.

Still got money to spare? 

If you still have even a few pounds spare each month, consider increasing your mortgage repayments, assuming that your mortgage provider allows you to do this. Over payments go towards paying off the amount you have borrowed, gradually reducing the amount you owe. 

Lazy savings?

Do you have money, over and above “rainy day” money equivalent to roughly three months’ expenditure, sitting in cash saving accounts? If so and you are saving for the medium-to-longer term, consider moving the money to stock market-based investment funds. This will give them the potential to work harder for you.

Cash you have in savings accounts is earning very little in interest and will therefore have been decreasing in value in real terms since 2008. To buy something now that cost £100 in 2008 you would need £130.90 (Source http://www.in2013dollars.com/2008-GBP-in-2018). So unless your savings have grown by 30.90% in the last ten years you are worse off now than you were ten years ago.

In contrast, during the 10 years ended November of 2018, the FTSE 100 returned 63% (Source https://www.forecast-chart.com/historical-ftse-100.html). Stock market investments are inherently risky – the value of stocks, shares and funds can go down as well as up – but there are ways of reducing risk. One is by not buying individual stocks, shares, bonds or other types of investments directly. Most people put their money into one or more investment funds that then invest the pool of investors’ money across a broad range of types of investments. This ensures that you do not have all your eggs in one basket.

Past performance is no guarantee of future returns.

Another is by choosing investment funds that are managed in a way that suits your attitude to risk. Some people are more willing or can afford to take more risk than others. Your financial adviser will help you work out your risk profile and can then recommend investment funds that match it. Your risk profile may change with your age and circumstances. 

Don’t miss out

Do you have premium bonds? If so, does National Savings and Investments have your correct address? If they do, they will notify you if one of your numbers comes up. If they don’t, contact them and find out whether you are among the 1.5 million or so unclaimed prize-winners (Source: NS&I, August 2018 https://www.nsandi-adviser.com/august-2018-premium-bonds-prizes)

The value of your investments can go down as well as up, so you could get back less than you invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice which contains no investment element is not regulated by the Financial Conduct Authority. 

Family matters

An addition to the family?

When you are having a baby, financial protection is probably the last thing on your mind. But you should check whether you need to increase your and your partner’s life insurance and critical illness cover.

Educate the children

Teaching your children about budgeting, saving and managing money from an early age will help them make good financial choices when they start earning money themselves.

Make saving a family affair – 1

Encourage the whole family – parents and children, grandparents and grandchildren, brothers and sisters, nieces and nephews – to open ISAs and pay in as much as possible. Any growth and income they take is tax-free.

Make saving a family affair – 2

If you have money to spare, consider paying in to your children’s or grandchildren’s pensions, as money in the fund can grow tax-free. There are restrictions on the total that can be paid in each year and you need to make sure you are paying into a suitable pension fund. You should therefore take professional financial advice, in conjunction with your relative if they are over 18, before doing anything.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice which contains no investment element is not regulated by the Financial Conduct Authority.

And make sure you stay in control

Staying in control of your finances should be relatively straight-forward if you follow a few simple steps.

Check your monthly statements

Check your bank and credit card statements each month for payments you no longer need. If you spot any cancel them. You may also spot the occasional error or fraudulent payment, which, if you act immediately, your bank or credit card company should be able to refund.

Claim unclaimed benefits

Do you have a young family? If so have you registered for Child Benefit? When doing so make sure you also claim the state pension credits that mothers can receive if they don’t work.

Talk about money

Who runs the family finances in your household? If it’s you, do you talk about money with your partner? Doing so can help reduce over-spending, not to mention arguments about money. If your partner is in charge of the family finances, why not ask them to explain things to you, not least in case the unexpected happens?

Embrace austerity – and help save the planet

Make a shopping list and stick to it, to reduce impulse purchases. Where possible buy unpackaged produce from market stalls and local, independent shops. As well as reducing your food bills and eating more healthily, you will be helping, albeit in a small way, save the planet.

Use technology to stick to your budget

Use the app provided by your bank combined with other personal finance apps, depending on what you want to achieve. For instance, get an alert when you are about to go overdrawn; set a maximum amount to spend each week or month and get an alert you when you are about to reach your limit; schedule in key dates such as when your insurance is up for renewal, or the repayment date for credit cards.

Keep track of what you’ve got

Document, on a spreadsheet or a sheet of paper – whichever suits you best, your (and if appropriate your partner’s) monthly income and expenditure. Check them every month, to make sure you are on track. On a separate sheet put the details and values of your pensions, savings accounts, insurance policies and levels of cover, together with regular payments in or out. Review these at least once a year. As well as helping keep your finances on an even keel, this will help you spot and duplications or gaps in your finances.

Make thing easier for yourself

Are you one of the 11.5 million or so people who must complete a Self-Assessment tax return (Source: HMRC, January 2019 https://www.gov.uk/government/news/self-assessment-deadline-less-than-one-month-to-go)? To avoid a last-minute scramble next year, put all documents you need into a folder as soon as you receive them. If you receive some online and others by post, use two folders, one digital and the other physical. Create a check list and tick off each document as it arrives. That way, you will have all the information you (or your accountant) need(s) when you come to fill out your next tax return.

Eliminate duplication

Do you know exactly what benefits you get from your employer? Check the detail. You may find that it includes life insurance and other types of insurance that you may already have taken out personally. You may be able to save money by eliminating duplicates – benefits provided by your employer are likely to be more cost-effective to those you take out privately. 

Everything in order?

Do you have a Will? If not, make one this month – not matter how young you are – with the help of a professional Will writer, to make sure that it is valid and really does reflect your wishes. You may be in the best of health, but what if that proverbial bus comes along when you aren’t looking? And while you are about it, make a list of all your financial accounts and assets and place them in a safe deposit box with a solicitor or bank. If you already have a Will, review it. It is surprising how quickly it can get out of date.

Tax advice which contains no investment element is not regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate Will writing.