Month: May 2023

The level of Statutory Sick Pay (SSP) increased in April 2023. Yet, ill workers are still likely to face financial hardships as it provides “very little insurance”, according to a Resolution Foundation report. The findings highlight how important having a financial safety net is. 

As of May 2023, eligible employees will receive £109.40 a week under SSP if they need to take more than three days off work.

While SSP can be useful, it’s unlikely to cover your financial needs.

In fact, according to the report from the Resolution Foundation, SSP is only around 11% of the average salary for a full-time employee. Compare this to the OECD average of 64% of salary. The only OECD countries that ranked lower than the UK are South Korea and the US, which don’t provide any SSP.

In contrast, many other European countries pay either full wages or a percentage of earnings between 50% and 90% for an initial period. This led to the think tank stating SSP in the UK offers “very little insurance”. 

In addition to the low flat rate, SSP is only paid for up to a maximum of 28 weeks. So, if you suffered from a long-term illness or were in a serious accident, it could stop before you’ve fully recovered. 

Thinking about how you’d cope financially if you were forced to stop work due to an illness is important. It not only means you can meet financial commitments, but it can reduce stress at a time when you should be focusing on your health. 

3 valuable steps that could improve your financial resilience 

1. Read your employment contract

Some employers offer sick pay to employees as a benefit. So, your first task should be to review your employment contract to see if you’d be entitled to any support.

Sick pay from your employer may be a proportion of your current salary and cover a set period. For example, you may receive your full salary for the first three months you were unable to work, and then it would fall to half of your salary for an additional three months. 

It’s important you know what would be covered so you can supplement this workplace benefit with other steps.  

2. Review your emergency fund

Your emergency fund is crucial for providing a financial safety net for short-term illnesses.

Having funds to fall back on means you can top-up the money you may receive from your employer or SSP. It can help you to maintain commitments, like paying your mortgage, and your family’s lifestyle if you need to take time off work. 

How much you should hold in your emergency fund will depend on your circumstances. It’s generally a good idea to have enough to cover at least three months of essential expenses in an accessible account. 

3. Check if income protection is appropriate for you

While an emergency fund is useful for short-term shocks, what would happen if you needed to be off work for a long period?

No one wants to think about being involved in a serious accident or suffering an illness that takes months to recover from. But it does happen, and income protection can be valuable in these instances.

Income protection would pay you a regular income if you were too ill to work. This is often a percentage of your usual salary. It would continue to pay an income until you can return to work, retire, or the term ends.

Knowing you have an income you can rely on means you can focus on what matters. 

You will need to pay premiums for income protection, and the cost varies depending on your circumstances and the level of cover you need.

Despite the value income protection can add to your financial plan, it’s often something employees overlook. However, if you couldn’t cope financially with the £109.40 a week SSP provides, can you afford to overlook it?

Contact us to talk to improve your financial wellbeing

If you want to create a financial plan that you can have confidence in, even when the unexpected happens, please contact us. We can work with you to create a financial safety net that reflects your priorities and concerns. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and condition and may have exclusions.

Between 12 and 16 June, Young Enterprise runs a national campaign across primary and secondary schools with the aim to give children the skills and knowledge necessary to understand finances to thrive in later life. 

Taking place every year since 2009, My Money Week has already taught hundreds of thousands of young people how to budget, save wisely, and manage credit card debt. 

My Money Week is the perfect time to teach your children about money and improve their financial literacy. 

So, please continue reading to discover five helpful lessons that could improve your children’s financial independence and ensure they’re prepared for anything life throws their way. 

1. How to manage their money online

These days, most banking is done digitally, so there’s a good chance that the current generation will primarily manage their finances online. 

You could set up an online account for them to use and manage, such as a Junior ISA or current account. This will make it much easier for them to grasp the concept of digital money and how to look after it themselves.

As your children get older, you can set them up with a traditional bank account they can use for online purchases. Then, when you feel the time is right and they’re responsible enough, they can progress to a debit card they can use in shops or at ATMs. 

2. What is debt, and when it should be used

As you may know, it’s easy to feel snowed under when debt starts piling up. So, teaching your children how to manage debt could be a great way to prepare them for the future. 

It may be worth explaining the difference between “good” and “bad” debt. For instance, you should teach them that debt isn’t always bad, such as if they need a mortgage to buy a house that is likely to appreciate in value. 

Meanwhile, you can teach them that “bad” debt is when they spend outside their means, perhaps on non-essential items, such as a new TV or expensive clothing. 

This could also be the perfect time to warn your children about credit card debt and “buy now, pay later” schemes. You can explain that these forms of debt often have uncompetitive interest rates and that credit card debt that they don’t pay off quickly can soon spiral. 

To help your child distinguish between good and bad debt, you could teach them the difference between “wants” and “needs”. Encourage them to ask themselves: is it really worth getting in debt for this purchase?

3. The importance of saving early

Getting a child into healthy saving habits early can instil good behaviours for later life.

An easy way to start is to open a savings account for your child or buy them a piggy bank to keep their pocket money in. This could encourage them to save for things that appear expensive in relation to the money they receive each week or month, but affordable if they save over the long term.

This could also lead to helpful conversations about what to do with additional sums of money they receive – such as for birthdays or Christmas. Teaching your children the importance of early saving could help them develop healthy saving habits as they age. 

4. The power of compounding interest and returns

Einstein once reportedly described compounding returns as the “eighth wonder of the world”, and for good reason. As such, it’s worth teaching your children about the power of compounding returns and the effect on long-term savings. 

Granted, this can often be a tricky subject for younger children to get their heads around, so it may be worth teaching them in the form of a game. One such activity is the “bank of treats” game. Simply give your child a small amount of money, and tell them to put them in their “bank”.

After a short while of saving, you can add more cash to their “bank” to show them how delayed gratification could earn them more in the long run. When your child understands just how powerful compounding returns can be, they may be more eager to save.

While teaching your children about compounding returns, it may also be worth mentioning how high interest rates can quickly escalate debt levels on unsecured borrowing, such as credit cards. 

5. The idea of “earning to spend”

In many cases, to spend money, you first need to earn it. This is an unavoidable fact of life, so reinforcing this with your children as early as possible could be a great way to develop their financial literacy. 

You could get your child to help around the house with chores to earn some, or all, of their pocket money. By doing so, they could come to appreciate the value of money and hard work.

Then, when your child is old enough, you could encourage them to get a part-time job to increase the amount of money they save. 

Get in touch

Helping your child to improve their financial literacy can help them in later life. If you want to explore ways of building a fund for your child or grandchild, we can help.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Each year in June, Citizens Advice runs a two-week scam awareness campaign, aptly named “Scam Awareness Fortnight”. The organisation hopes its movement will raise your awareness of common scam tactics, and mean you’re confident that you know what to do if you spot one.  

This fantastic campaign comes at a convenient time, as investment scams have been on the rise in recent years. Indeed, FT reports that calls to the Financial Conduct Authority (FCA) related to investment scams have nearly tripled over the last five years. 

Unfortunately, the pressures caused by the cost of living crisis have created the perfect environment for scammers to foster false hope and tempt you towards investments that are too good to be true. 

So, what better time to read up on investment scams and protect yourself from them than Scam Awareness Fortnight? Read on to discover four tell-tale signs of scams, and what you should do if you spot a dubious investment opportunity. 

1. They offer “guaranteed” returns

One red flag to keep an eye out for is the promise of “guaranteed returns”. In the world of investing, it’s rare to find an opportunity that offers high or guaranteed returns for minimal risk.

In fact, the opposite tends to be true – low-risk investments typically offer slower-paced returns. Of course, past performance isn’t a reliable indicator of future performance.

If “get rich quick” opportunities did exist, it’s likely that everyone would be investing in them. So, a tell-tale sign of a scam is when an investment seems too good to be true. 

2. They pressure you to make a quick decision

Another common tactic of scammers is to use high-pressure sales tactics to force you to make a decision quickly. “Maybe” won’t be a suitable answer, and the scammer will likely be persistent in persuading you to invest. 

The scammer may also not agree to you calling them back after you’ve mulled over the opportunity – they’ll likely either demand an immediate decision, or offer to call you back after a brief period of consideration.

They may even tell you that the investment is a short-term opportunity that others have already reaped the rewards of. Scammers will try to pressure you into making a quick decision as you may be more likely to take a risk on impulse. 

Or, if the scammer believes you seem wary of an opportunity, they may offer you bonuses or one-off discounts that make the investment seem even more alluring. 

3. The investment opportunity may seem “unusual”

When the scammer presents you with an “unmissable” investment, some features of the opportunity may seem unusual and start ringing alarm bells. 

For instance, the details provided about the opportunity may be vague. Scammers typically use lots of jargon to confuse you and tend to focus on the headline figures promising high returns rather than the fundamental features of the investment opportunity.

Suppose the opportunity has aroused your suspicion and you ask to see a website to confirm the company’s legitimacy. In this case, they may give you the address for a website that doesn’t have the details of its “once in a lifetime” offer. 

4. The scammer may contact you out of the blue

It’s highly unlikely that a legitimate investment company would cold-call you out of the blue to offer you an investment opportunity. So, if you’re contacted unexpectedly by someone offering you an “exclusive” investment, you should be wary.  

These days, scammers will typically attempt to contact you by phone or email. However, you should still be vigilant of being approached with investment opportunities on your local high street or even by someone knocking at your door.

And, when they do manage to get through to you, the scammers may attempt to ingratiate themselves with you. They could start asking about your family and any future financial plans you have, then use this information to empathise with you and reassure you that the opportunity is legitimate. 

What to do if you think you’ve spotted a scam

Ensure that anyone who offers you an investment opportunity is legitimate

You can ensure that a company or individual offering you an investment opportunity is legitimate in several ways. For instance, you can search for the name of the company on the Financial Services Register, which is provided by the Financial Conduct Authority (FCA). 

This is a database of all FCA-authorised companies, and if you can’t find the firm offering you the investment on this register, it may be wise to avoid it altogether. 

Be on your guard

Before you make any sort of investment, you should ideally set a firm rule that you won’t be tempted by any unsolicited opportunities. 

It’s worth sticking to this rule at all times; if you’re called with an investment opportunity, hang up the phone immediately, or refuse to respond to a text or email. By doing so, you could deter even the most persistent scammer. 

Talk to an expert before investing

Perhaps the best way to protect yourself from investment scams is to speak with a financial expert you trust before you invest.

You could reduce the risk of falling victim to a scam by working with us before making an important financial decision, such as transferring your pension or paying a considerable sum of money towards an investment. 

Get in touch

If you believe you’re being targeted by investment scammers, or fear you’ve already been the victim of a scam, then we can help.

Please contact us for expert guidance on how you should approach the situation. 

Please note:

The value of your investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

In a bid to encourage early retirees back to work, chancellor Jeremy Hunt unveiled several changes to pension allowances during the Budget. The announcements could mean you’re able to save more in your pension and boost your retirement income. 

Here are the four key pension changes Hunt announced. 

1. The Lifetime Allowance will be abolished 

Previously, the Lifetime Allowance (LTA) has limited the amount of pension benefits you could tax-efficiently build up in total. Those that exceeded the allowance could face an additional tax charge when they accessed their savings. In the 2022/23 tax year, the LTA was £1,073,100. 

It meant that some savers stopped pension contributions or even retired early because they didn’t want to cross the threshold. 

For the 2023/24 tax year, the charge for exceeding the LTA has changed to 0%, and it’s expected the government will abolish the LTA in April 2024. So, if you were nearing the LTA threshold, you could add more to your pension without worrying about paying more tax. 

2. The Annual Allowance has increased to £60,000

While the government is scrapping the LTA, the Annual Allowance will remain in place. However, the maximum amount you can save into a pension tax-efficiently each tax year will rise from £40,000 to £60,000. 

This means you can place up to £60,000 (or 100% of your annual earnings) and receive tax relief on your contributions. Tax relief is given at the highest rate of Income Tax you pay, so it could provide a welcome boost to your retirement savings. 

As a result, it’s worth reviewing your current pension contributions and calculating if increasing them could make sense for your financial plan. 

3. The Money Purchase Annual Allowance is now £10,000

If you’ve flexibly accessed your defined contribution (DC) pension, you may be affected by the Money Purchase Annual Allowance (MPAA). 

The MPAA reduces how much you can tax-efficiently save into your pension. As retirement has become more flexible, the MPAA is affecting more people. It may affect workers who use their pension to create an income during a career break and then return to work, or those that have semi-retired and want to continue adding to their pension.

During the Budget, Hunt announced the MPAA would rise from £4,000 to £10,000. So, if you’ve taken an income from your pension, you may now be able to save more tax-efficiently.  

4. The amount high earners can tax-efficiently save has increased 

The amount high earners can tax-efficiently save into their pension is affected by the Tapered Annual Allowance. This allowance has now increased from £4,000 to £10,000. 

The “threshold income” for the Tapered Annual Allowance has also increased from £240,000 to £260,000. 

The amount you could tax-efficiently save into a pension falls by £1 for every £2 your income exceeds the threshold for the Tapered Annual Allowance. It can fall by a maximum of £50,000 to £10,000.

The changes mean that high earners will now be able to contribute more to their pension tax-efficiently, and some may no longer be affected by the Tapered Annual Allowance.  

Should you increase your pension contributions in 2023/24? 

The changes announced in the Budget mean many workers could tax-efficiently contribute more to their pension in 2023/24. So, should you increase your contributions?

There are many reasons why adding more to your pension makes sense. It’s a way to invest in your future and could mean you enjoy a more comfortable retirement. As you could receive tax relief on your contributions and investment returns are free from Capital Gains Tax, a pension could be a valuable way to invest for the long term.

However, you should keep in mind that pension contributions aren’t usually accessible until you are 55, rising to 57 in 2028. As a result, you couldn’t make a withdrawal to cover emergencies or other outgoings before you reach retirement age. 

If you are thinking about increasing your pension contributions, you should review your wider financial plan to balance short- and long-term goals. 

Contact us to create a tailored financial plan

A tailored financial plan could help you reach your retirement goals, whether you’re close to the milestone or it’s still years away. Please contact us to arrange a meeting and discuss what steps you could take to get on track for the retirement you want.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.  

Retirement planning is a way to ensure that you can generate an income that supports the kind of lifestyle you lead in later life, whatever that looks like.

While your pension is likely to provide the foundation of your income during retirement, fears about inflation and volatile markets are encouraging people to look for alternatives, and you may be considering property. If so, you’re not alone.

According to FTAdviser, 25% of savers plan to invest in property as an alternative way of generating income in retirement. You often see news stories about record-breaking house prices so many people see property as a viable investment, and you can also potentially generate income by renting it out.

However, there are certain additional costs and tax implications associated with property that you need to be aware of. It is important to consider your personal retirement goals to determine which option is best for you.

Read on to learn the potential benefits and downsides of investing in property.

Property prices increased 6.3% in the year to January 2023

According to MoneyAge, the total value of UK housing stock hit a record high of £8.68 trillion at the end of 2022. Naturally, you may be interested in property because it’s more valuable than ever and historically, prices have increased. 

Data from the Office for National Statistics (ONS) shows that house prices rose an average of 6.3% in the 12 months to January 2023. While past performance can’t tell us what the future holds, this is a healthy annual return and, if you invest your money in property, you benefit from the potential for capital growth. 

Equally, of course, property prices could fall and your investment could lose value. As the ONS report, on a seasonally-adjusted basis, the average UK house price decreased by 0.6% in January 2023, following a decrease of 0.4% in December 2022.

One of the other issues with property is that it is generally a less liquid asset than cash or savings. It’s usually relatively easy to access funds tied up in savings accounts, funds or shares, whereas you may have to either sell a property or borrow against it to raise capital – both of which can take weeks or months to conclude.

Buy-to-let properties cost an average of £3,134 a year to maintain

The income generated by renting out property is often the thing people point to when considering it as a retirement strategy. Demand for rental homes has historically remained strong and, as such, you may be able to earn a healthy income with a buy-to-let property.

According to Property Data, the average rental yield in the UK – your annual rental income divided by the total value of the property – is 4.75%. But in some areas, it can be much higher than this. For example, the NG7 area of Nottingham has the best returns in the UK with average rental yields of 11.3%.  

While the rent may generate an income for you, the maintenance costs associated with buy-to-let investments could negate some of this.

A study from LV= found that landlords spend an average of £3,134 a year on their buy-to-let properties. 

If you don’t have a tenant in the property – commonly called a “void period” – you may have to absorb these costs yourself as you won’t have rent payments to cover them.

Additionally, borrowing to purchase a buy-to-let property can be more expensive than borrowing to buy your own home. According to Money Helper, buy-to-let mortgages usually have higher fees and interest rates, and often require a minimum deposit of 25% of the property’s value. So, you will likely need a larger lump sum to invest in property. 

There may also be additional costs including: 

• Stamp Duty Land Tax (if the property costs £40,000 or more) in England and Northern Ireland – this includes an additional 3% on top of the normal rate because it is a second home. There are similar taxes in Wales and Scotland
• Estate agent, solicitor, and conveyancing fees
• Insurance
• Refurbishment costs.

You may need to factor these costs in when deciding if property is a suitable way to fund your retirement.

Property may be less tax-efficient than other options

Tax efficiency is an important part of retirement planning. If you can find ways to reduce your tax burden, that ultimately means you keep more of your savings or income, it may be easier to achieve the lifestyle you want in retirement. It may also mean you can pass more of your wealth on to your family.

If you own property outside a limited company, you are normally liable to pay Income Tax on rental profits, and if you sell the property, you could pay Capital Gains Tax (CGT) on any value growth. 

Property, whether it is your home or a buy-to-let investment, is also normally considered part of your estate for Inheritance Tax (IHT) purposes. If the total value of your estate, including any properties, is above the IHT nil-rate bands, your family may be liable to pay IHT.

Get in touch

If you want to explore your options for generating an income in retirement, get in touch and we can advise you.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Buy-to-let (pure) and commercial mortgages are not regulated by the FCA.

Think carefully before securing other debts against your home.