Finding a second income that works……

Having a second income is becoming more and more popular, partly due to necessity to meet increases in living expenses which can make all the difference in having disposable income left before payday, or because the perceived security of employment is considerably lower than it was in previous generations.

Many women may have taken career breaks to raise children or find that by the time rising childcare costs are met, (the average cost for UK childcare is £242 per week full time*) there is little change left over for essentials, let alone small luxuries.  The average monthly cost of living in the UK ranges from £706.81 in Hull for a single person (£1437.74 for a couple) to £1676.51 in London (£2937.07 for a couple) ** so although wages can be commensurate with location, the cost of living progressively rises, meaning everyone faces the same degree of financial challenge regardless of where they live in the UK.

In line with the percentage of marriage breakdowns, it must be recognised that while there are around 1.8 million single parents, making up nearly a quarter of all families, almost 90 per cent of them are women, a colossal responsibility that needs appreciating, negotiating, and supporting. Many women also feel the pressure to elevate not just their own lives, but the lives of their dependents with integrity and often inexhaustible commitment.

It’s true to say that while men generally keep a steady working momentum and have a vocationally progressive finger on the pulse of what’s happening in their working world, a woman faces various disruptions – children being the primary responsibility, but also relationship breakdowns and the role of a carer which is more commonly embraced by women.   This leads to an inevitable erosion of momentum and self-belief in picking up where they left off in a working environment in which they were happy and established, or even beginning something fresh and new.

Female empowerment, a phrase that has many implications, refers to a broad range of extra impetus a woman must overcome in order to believe they can embrace the strength and confidence they need to break through their own mindset and sometimes unfair perceptions of women in the workplace.

Statistics show that financial independence and success has a hugely positive impact on their offspring, the commitment and drive to improve the standard of living for the family with balance and dedication plays a significant part in being a great role model and inspiration for your children, and indeed partner, family and friends.

Following the last recession,  it became ever more needful to find sustainable financial security, in terms of shared responsibility within relationships and families.  As a nation the UK lives in a perpetually anxious state of another imminent impact, the latest political uncertainty further compelling our anticipation.

Studies made by the BITC (Business in the community) *** show that unleashing the full female workforce potential could be worth £23 billion a year to the economy.  Numerous references are made to their role played in the board room, down to women’s qualifications and the need for that to be embraced by many sectors; for example, 1 in 3 female graduates have a degree in health related studies compared to 1 in 11 for men.

Home based businesses are also being successfully established and grown by a healthy support network embraced by many entrepreneurs; anything from network marketing brands, starting a blog, affiliate marketing, or playing to existing career strengths and freelancing, ie copywriting, design or social media management.   Some flourish at making products and selling them via an online shop like Etsy, eBay, or Amazon.   Physical work such as waitressing and bar work, cleaning work, helping in schools, dog walking – all kinds of convenient and flexible work can be utilised to make just that little bit of difference.

One has to be wise to online scams that promise you’ll get rich quick which usually means the opposite, but the collective experience of the accrued wisdom and explorations already made are available in several networks (ie Women in Business, Athena etc), as well as providing business opportunities themselves.   Help is of course on hand for the necessary insurances, registering with HMRC, tax returns and administrations.

It’s also good to note that 72% of women who run their own business say they’re in their dream job!

Why not investigate what is available now? It can lead to less anxiety, a feeling of greater security and also the ability to put aside savings for the future, helping to bolster your resources and enjoy the fruits of your labours later in life.

  • Birchwood Investment Management Limited is authorised and regulated by the Financial Conduct Authority.

* https://www.moneyadviceservice.org.uk/en/articles/childcare-costs

**https://www.moneynest.co.uk/cost-of-living-uk/

*** https://gender.bitc.org.uk/all-resources/factsheets/women-and-work-facts

 

Act Early to Protect your Financial Future

(written by Elena Kale on behalf of Birchwood Investment Management Ltd)

Managing your money can be a challenge no matter what stage of life you are at or your current circumstances.  Financial planning is often thought of as something ‘older’ people need to do when they are nearing retirement, but after working in financial services for over 18 months it’s become very apparent this needs to be on a ‘younger’ person’s agenda.

Most of us probably think we’re fairly financially aware.  We may have our own home, if we’re lucky enough to be born at a time where property was affordable; if we’re employed we’re likely to have an auto-enrolment pension; if we’re parents we’ll (hopefully) have life insurance of sorts; we’ve thought about or made a will, however retirement seems a distant dream in today’s pressured working environment.  We’ll think about that next year.

One of the things I’ve realised over the last few months is how I, like so many others, have been procrastinating about later life planning and how essential saving is for our futures.  I’m a single parent with two children,  and without the benefit of a crystal ball, I’ve woken up to the fact that if I don’t address my finances head on,  no-one else is going to do it for me.  Plus being in my forties, that dreaded phrase “middle-age” is upon me, so time is ticking by until I reach the point where I won’t want to, or can’t, work to the level I’m working at now.   I’m also self-employed, a choice so many more women are now choosing through remote working opportunities and the desire to work flexibly around children, however this doesn’t currently provide automatic pension options, nor a guaranteed income that will stay the same each month.  Budgeting therefore can be problematic especially with large rents/mortgages and ever increasing bills.

It’s debatable what the state pension will look like in the next 20-30 years and currently standing at up to £8750 per year, this won’t stretch very far, especially if we’re still paying for our homes into our later years.  Women especially could be worse off in retirement, having taken career breaks due to motherhood; come through divorce where their husbands kept a bigger part of their pension in lieu of property, or with the gender pay gap likely to have earned less overall and therefore have less invested in a pension.

But it can be turned around and the younger we are to realise this, the more we can do.

Becoming more financial “savvy” can be empowering and make you feel more secure; it could be as  simple as changing your supermarket to save on your weekly shop, using cashback sites or comparison sites annually to get the best deal on your utilities and insurances.

The trick, is to find ways of saving that you don’t really notice.  Even a small amount each month, invested in the right way, will build over a period of time, such as a stocks and shares ISA account I’ve opened with the online app Moneybox – www.moneyboxapp.com .  Starting from as little as £1, it basically links to your bank account and rounds up your purchases to the nearest £1. The money is invested across thousands of global companies such as Netflix and Disney via simple tracker funds and you can choose from three options on investment – Cautious, Balanced and Adventurous, just as you would if you were investing larger sums.

Like so many others, I have debts including credit cards and my mortgage but there are ways to decrease the interest payable.  For example by re-mortgaging to combine debts or by continually switching to interest only balance transfer cards every time the promotional period expires – although be mindful of your card’s transfer rates.  The principle is to put money towards the actual debts, not just paying the interest off so your money works more efficiently. If you’re self employed and re-mortgaging may be tricky, consider a second charge to consolidate – then tear up the cards!

Research by Leeds Building Society* found that one in four workers aged over 40 feared outliving their savings more than dying and over half (54%) of those surveyed thought they would have to work beyond retirement age to have enough savings to live the lifestyle they want.  From those surveyed who were full-time workers, 42% say their biggest regret was not saving enough money when they were younger and 25% of the 50 to 60-year olds said they regretted not saving enough money to retire early.

Retirement is something we worry about more as we get older.  It can be difficult to look this far ahead when you’re only in your late 30’s or 40’s with a young family to feed, a roof to keep over your head and potentially only one income due to child care arrangements. Pensions can sometimes get deferred to cover other expenses but if you can maintain your pension payments and try to build up a small savings pot, at least you are covered for a rainy day. It’s all about balancing your finances to try and cover all eventualities, including income protection & critical illness cover should an awful accident or illness happen and we’re unable to work.

If you are lucky to have any cash spare at the end of the month and have the option to overpay even by a small amount on your mortgage it can make a big difference and will cut down the length of your mortgage and the age at which you will finish paying it.

By our 40’s many of us will have changed jobs several times and may have enrolled in several pensions over the years – I have 3 pensions currently.   Most of us are unsure where they are and how much is in them, so it’s important to consider combining them into one more manageable pot.  An independent financial adviser can provide invaluable advice.

Some of us may not receive significant inheritances with older generations potentially still renting or releasing equity from property to sustain their own retirements.   We’re also now living longer, therefore homes may need to go towards paying for care home costs.  So we need to plan financially to cover a longer period of time, without relying on families to help shore up the pension pots.

Don’t be afraid to ask for financial advice whatever your circumstances are (you don’t need large sums of money to have a conversation) to make sure you are preparing for your later years and protecting your family’s long-term future.

If you would like financial advice on how to invest in your financial future through savings, investments or any other areas covered in this article, please contact us at info@birchwoodinvestment.com

  •  The value of investments and the income from them may go down as well as up and investors may not get back the amount they originally invested.
  • Birchwood Investment Management Limited is authorised and regulated by the Financial Conduct Authority.

* https://www.moneywise.co.uk/news/2018-07-30/one-four-workers-over-40-fears-outliving-their-savings-more-death

 

Our very own Helen Bourne got covered in mud for a great cause!

The Maldon Mud Race takes place every year with participants from across Europe running, and more often than not crawling, across a 400m stretch of the River Blackwater in Essex.  Run during low tide, the mud is inches thick and demands a great deal of stamina and determination from those who take part, who use the race to raise money for charities and worthwhile causes.

One of these participants was our employee Helen Bourne, who completed the race in honour of her late father, who consistently ran the race every year raising thousands for charity until he sadly passed away last year.

So far Helen has managed to raise over £350 for the Sue Ryder Hospice in Moggerhanger, Bedfordshire, who cared for her father in his final few weeks. She would like to thank everyone who supported her in completing this weekend’s event and hopes she has done her father proud – which we’re absolutely sure she has!

The fundraising link is still available should anyone wish to contribute – https://www.justgiving.com/fundraising/helen-bourne2

 

Protecting your Family Should the Worst Happen

It’s something none of us want to think about, but unfortunately there are two certain facts in life – we’ll all pay taxes and we’ll all die at some point, however, we may also fall seriously ill so we need to consider protecting ourselves and our families should the worst happen.

Life expectancy in the UK steadily improved throughout the 20th Century, meaning we now have a larger and older population, which is mainly due to people looking after themselves more, smoking less and improvements in the treatments of illnesses.  However, in the last few years life expectancy in the UK has slowed down and virtually ground to a halt, according to ONS data (Office for National Statistics) *. The data showed that as of 2016, a female baby born in the UK would on average be expected to live until 82.9, while a boy would be predicted to live until 79.2.

Although cancer survival is at a record high and smoking rates are at an all-time low, every 2 minutes someone in the UK is diagnosed with cancer and every 4 minutes someone in the UK dies from this disease**.  Shocking as these statistics are, this is now the harsh reality of cancer in our day and age and despite on-going research, there are more than 360,000 new cancer cases reported in the UK every year – nearly 990 every day (2013-2015).

Whilst most of us don’t think twice about insuring our homes and our cars, worryingly, only one in four UK “main household earners” have a life insurance policy in place according to the Association of British Insurers ***.  We may all feel that “it’ll never happen to me” but if something does, the impact of not having insurance can add to the stress and shock of receiving that news.

The research by comparison website MoneySupermarket.com showed that more men than women have Life cover, with 45% having a policy in place compared to 38% of women.   Women often work part-time or opt to take a career break and stay at home to bring up children, so if they fall ill, or worse, this could effectively wipe out the family childcare, meaning the father would need to take time off work to look after his children.  This is especially significant when a child is ill or has a long-term medical condition that requires full time care.  Critical Illness (CI) insurance can provide a form of security as it pays out a tax-free lump sum on the diagnosis of one of a number of serious illnesses; this can apply to both the parents and children, as a parent can add their children to their own CI policy providing some financial peace of mind at such a difficult time.

Just one in five women have CI cover in place, compared to one third of men, according to research by comparison website ActiveQuote.com**** with only 13% of women with dependent children choosing to be covered, according to insurer Scottish Widows. They found 40% of mothers have life insurance cover, yet a critical illness claim is far more likely. The importance of taking out private CI cover grows with more women working part-time, not at all or being self-employed meaning they won’t have protection benefits through an employer.

With regard to Life cover, your policy pays a one-off payment to your dependents when you pass away and there are no income tax or capital gains tax liabilities on the proceeds. However, all proceeds that fall into your estate attract potential inheritance tax liabilities.  This is chargeable at 40% after the nil rate band is taken into consideration.  it is therefore recommended to set up a life insurance policy within a trust so that the proceeds do not form part of your estate.

One particular use of life assurance is for the payment of inheritance tax.  For a married or co-habiting couple, this is set up on a “joint life second death” basis and placed in trust for the beneficiaries. The type of policy used for this purpose is usually a “Whole of Life plan”.  By covering the expected amount of inheritance tax with this policy, the entire value of the estate can pass to the designated beneficiaries.

It is always recommended to seek independent financial advice when planning critical illness cover, life assurance cover and for estate planning.   Protecting your family is critical as no-one knows what is around the corner for them health wise.

If you would like financial advice on the different Life Cover and Critical illness policies or Whole of Life policies covered in this article; please contact us at info@birchwoodinvestment.com

Birchwood Investment Management Limited is authorised and regulated by the Financial Conduct Authority.  Estate planning is not regulated by the Financial Conduct Authority.

* https://www.bbc.co.uk/news/health-45096074

** https://www.cancerresearchuk.org/health-professional/cancer-statistics-for-the-uk#heading-One

*** https://www.thisismoney.co.uk/money/news/article-3387027/One-four-UK-breadwinners-not-life-insurance-buy-life-cover.html

**** https://www.moneywise.co.uk/insurance/health-insurance/critical-cover-women-simply-cant-afford-to-ignore

 

Outstanding Achievement for our Chartered Adviser & PFS Fellow, Lee Garner

Birchwood Investment Management Ltd believes that our current and future clients deserve only the best levels of service when it comes to helping them with financial advice. Therefore, by investing in our staff and allowing them the flexibility to study, it means they will feel supported and encouraged to go on and achieve their best individually, for the organisation and its clients.

Qualifying as a Chartered Financial Planner involves many years of study and examinations alongside working in the industry, which is why at Birchwood Investment Management Ltd we are extremely proud of Lee Garner, one of our regulated advisers.

Lee achieved Chartered status in June 2018 at the age of 30.  He was also published as one of ‘New Model Advisers top 35 under 35’ alongside some very reputable names and directors in the industry.

Lee’s journey into financial planning started In Summer 2013, when he was accepted into Financial Adviser School (FAS).  In October 2013, he achieved his Diploma in Regulated Financial Planning (the minimum needed to be an adviser).

In August 2014, Lee realised that the FAS alone would not get him to the levels he wished to achieve and started working as an administrator for the IFA focussing on the mortgage industry.  Coming towards the end of his training in May 2015 and needing to utilise his knowledge of pension and investments in the work place, he joined us here at Birchwood as a Paraplanner for one of our advisers.

Lee became authorised by Birchwood in January 2016 (CF30), allowing him to advise directly and he started managing a small bank of clients.  He started studying towards his Chartered status alongside other exams, as he felt less experienced than the other advisers, whilst also attending numerous industry conferences and client meetings.  At this stage of his career Lee said “New clients continued to be passed to me and I increased my knowledge, wanting to demonstrate my passion and commitment and to give them reassurance and peace of mind that they could achieve their life and financial goals”.

Up until June 2018, working full-time as an adviser, he was also caring for his daughter alongside work and study. In June 2018 he achieved his APFS (advanced diploma in financial planning) and was awarded his Chartered Adviser status from PFS (The Personal Finance Society) – following 5 years in the industry as well as the time he spent working part-time in insurance during his university studies.

Lee continued to study during 2018 and went on to become a Fellow – the highest level awarded by PFS. He has been given numerous permissions to deal with equity release, long term care, discretionary investments and achieved his Pension Transfer Specialist exam, after which he became one of Birchwood Investment Management Ltd’s Pension Transfer Specialists.  He is also involved in delivering company workshops as part of our Financial Education in the Workplace services in line with outplacement companies and HR departments.

Lee commented “I really want clients to have peace of mind that Birchwood Investment Management Ltd are looking after their financial affairs in line with their own personal objectives.  I like to fully understand their individual situation and what they want to achieve for their families.  Due to achieving my fellow status at such a young age, I hope to see many clients up to and through their retirement.”

Each key member of our team is professionally qualified in their particular specialty, with experience in financial analysis, insurance and banking, meaning that we can offer a wide range of knowledge for every client circumstance.  Our aim is to retain our talent and make sure they feel fulfilled in their roles and enjoy their time working here.

Why Parents should Involve their Children in Financial Decisions

With one in five parents now giving away money to their children to avoid high inheritance tax bills, it is more important than ever to include your children in your financial decisions, to avoid them having a nasty shock or trying to deal with something they know nothing about should the worst happen.

Research undertaken by Direct Line* found that a total of £227 billion has been transferred, with £32,920 being the average amount that parents are gifting their children.  Another 19% of parents had not given any money away as of yet, but planned to do so in the future.  However, 34% of parents said they did not have the assets to give away, with one in 10 saying their children are too young and 13% were worried that they will be short of money themselves when they are older.

Times are changing.  In our grandparent’s day the financial decisions were normally carried out by the breadwinner of the family (typically the male) and sometimes only the sons were made executors of the will, which was kept a secret until the parent(s) died.  Nowadays, thankfully executor responsibility is split equally between all the children to ensure everything is kept fair.

More parents are realising they need to look at their finances before it’s too late to ensure their children know their wishes and who to contact from a financial point of view, whether it is another family member or a Financial Advisor.  The latter is especially important to help children know who to turn to for help with investing their parents’/grandparents’ money when the time comes.  Even if gifting money to your children before you die is the route you decide on, there are still implications to be considered, such as if you give the money away you need to do so 7 years before you die, otherwise your children will still be liable for inheritance tax.

Talking about finances is uncomfortable for both children and their parents, but doing so can alleviate stress and worry in the future – especially if you are suddenly taken ill or suffer from dementia and can’t make your own decisions. You may feel too proud to talk to your children, feel it is a private matter, don’t want to lose control of your money or don’t want your children to take advantage. Whilst these concerns are valid there are considerable benefits to having this discussion with your (grown up) children whilst you still can.

It may help to open discussions around children potentially needing a small ‘early inheritance’ to help them out, whether this facilitates higher education, assists them to buy their first property or simply to alleviate any money concerns.  It can also save time when they know details of your will/s, powers of attorney, where vital documents are held and even meeting your financial advisor so a relationship is formed.

It is also helpful to talk about options should you no longer be able to care for yourself; waiting lists for retirement/care homes can sometimes be long, so it means your children can move faster should the need arise.  No one wants their parents to become ill and lose their judgement but there are several studies that show the ability to make financial decisions declines by about 2% a year after age 60.

It is important that discussing family money matters does not become a taboo subject and you try to get everyone involved in financial planning and budgeting from an early age as it instils good financial awareness. This can start from saving money in a piggy bank, having a bank account as children get older and even bringing them into family businesses or taking up part-time jobs encouraging them to budget for what they need, whilst showing them the real costs of living and what expenses you have as a family each month.

By being open and honest regarding the financial history of the family it means your children will also learn from your experiences, good or bad, and it will help shape their financial future.

To talk to Birchwood Investment Management Ltd about your financial planning please contact info@birchwoodinvestment.com

* https://www.moneywise.co.uk/news/2018-10-08/parents-giving-away-227-billion-to-kids-to-save-inheritance-tax

 

 

 

 

 

 

 

Spend Wisely at Christmas to Start the New Year Financially Stable

Christmas is fast approaching and some of us will have already started our Christmas shopping by taking advantage of the early sales to try and grab some bargains. Last Christmas British parents were expecting to spend an average of £1,149 on Christmas, with over half of them (64%) admitting they were likely to overspend; according to research conducted by OnePoll*. This is astounding when you consider that this is just under the average amount people normally spend on a family holiday (£1,385).

It is important to not get too immersed in keeping up with the Joneses and giving your children the latest toys; but to remember what Christmas is about – the joy of giving, spending time with your family and friends over the festive season but more importantly to avoid starting the new year worrying about how you are going to pay it all off.  However, with figures from the Bank of England** showing that British families spend on average £2000 a month normally throughout the year on living expenses and other costs, but in December spend on average £500 more – it means more and more families are starting the new year in a poor financial state.

Children when they are tiny are happy to simply play with just a cardboard box and wrapping paper and as they get older are happy with one of two good quality presents rather than being inundated with lots of presents they will never get around to playing with (but will sit on your credit card bill for months afterwards).  1 in 3 Brits are putting Christmas on a credit card according to charity National Debt-line; ***and with Christmas present sales starting as early as August, you can often forget where you have stored them only to find you have actually massively overspent on your intended budget.

It’s always a good idea to make a spreadsheet before you start your Christmas shopping to set an overall budget of what you can afford to spend, which is then broken down into individual spend on family and friends. With some parents spending an average of £121 per child**** but other parenting forums suggesting it is nearer £300 per child, you need to set a realistic budget that you can afford and just buy them two presents they really want. You can then put any extra you would normally spend into their savings account for them therefore, investing in and protecting their future.

You could also ask Grandparents and other family members to do the same – a small present to open on Christmas day and the rest in money to either save for something they really want e.g. a bike or go towards a bigger future expense e.g. a car, university fees or a house deposit. If you do the same for their birthdays this will amount to thousands over their childhood to really help them start to learn how to become financially independent.

It is never too early to start your children off saving and to educate them on the importance and value of money. Get them involved by encouraging them to do chores which they can earn money for and show them what items cost by getting them to help you with the weekly shop.

There are a number of options available now with regards to saving and investments but try to get your child involved in the decision to see how their money grows; which in turn will motivate them to add to it themselves as the years go by.  It all depends on how much you want to contribute and how regularly, as some investment products have fees that would eat into smaller amounts of cash over time.

A child savings account can be opened with just £100 or if you have a bigger amount to invest or want to pay in smaller regular amounts, it can be worth considering a Junior ISA, a tax-free savings account for under 18’s. Other options are Stocks and Shares Junior ISA’s, Premium Bonds, Investment Trust Saving Schemes, Pensions and Direct Shareholdings.

The new year is the perfect time to reflect on your life and whilst we think nothing of setting health and fitness goals; we don’t always do the same with our finances.  Social media often gives the impression that others are leading a more expensive lifestyle so we try to keep up with each other, whereas in-fact the family you are comparing yourself to may actually be broke and spending everything as it comes in. Do what’s best for you and your family whilst trying to be as financially savvy as you can.

Set a budget at the start of the year to work out your day-to-day living costs and then work out your other priorities in terms of home improvements or holidays and try to keep to it as much as possible. Try to also think longer-term as no-one knows what is around the corner and it’s important to put even a small amount away into a savings account for a rainy day or should you become unemployed or cannot work due to illness.

If you would like financial advice on how to invest in your children’s future through savings or investments or any other aspect of this article; please contact us at info@birchwoodinvestment.com 

* https://www.express.co.uk/news/uk/888822/UK-christmas-spending-british-families-presents-food-drink-holiday-abroad 

** https://edu.bankofengland.co.uk/knowledgebank/how-much-do-we-spend-at-christmas/ 

*** https://www.telegraph.co.uk/christmas/2016/12/05/much-should-spend-christmas-presents-year/ 

**** https://www.moneywise.co.uk/investing/investing-children/savvy-ways-to-give-your-kids-money-christmas

 

How to mitigate social care costs during your retirement

With MP’s calling for a potential levy for over 40’s to cover the spiralling cost of social care for the older generation; when is the right time to start preparing financially for your old age? * With social care being greatly affected in recent government cuts, there already exists a £2.5 billion funding gap. Therefore, MP’s are proposing that when people turn 40 they would start paying into a fund to ensure they benefit from a free social care provision at the point they need it.

When the majority of people look ahead at their retirement, they realise they must have a substantial pension to support them to maintain a decent standard of living, but many do not consider the potential costs of social care, either within their home or moving out into a care home.

Recent research from ‘Think Tank Demos’ indicates that 1 in 4 Brits think that social care is free and only 5% of over 40’s are prepared financially for any costs they may incur in later life. **

This is very worrying and may partly be due to people in their 40’s and 50’s settling down later in life compared to the current over 60’s and 70’s (their parents), so they’ve not been on the property ladder for as long and are still saddled with longer mortgage commitments. These mortgages may not finish until well into their 70’s, plus they may potentially also have credit card debts and loans, limited pensions or savings in place, and very little spare money to commit to their retirement and social care costs.

Family commitments and the rising cost of living means many just won’t be prepared for the costs of their later years.  They may be counting on inheritance money from their parents’ properties in order to pay off their own mortgages (as was the case for many people now in their 60’s and 70’s) but with an ever-ageing population this is becoming increasingly unlikely as this generation may now need to sell their homes to pay for their own social care.

Although, the older generation may have benefitted from having substantial work pensions, state pensions and reasonable savings in place, this does not necessarily mean they are completely covered. Many married very young, had children in their early 20’s and now their children are grown up, are enjoying a new lease of life travelling the world spending all their spare cash!  So it may come as a shock if their house needs to be sold to cover social care costs, bearing in mind it may not be enough, especially with the average care home now costing £30,000 per year.  They also need to consider these costs when lending money to children as this could leave them out of pocket later on.

Therefore, what’s the solution?

It may be that the older generation have plans in place to co-habit with their children and/or grandchildren when the time comes that they need looking after. This could involve them selling their home and moving into their child’s house or both parties’ selling their properties to buy one larger property which is then gifted to them upon their death. This can benefit both sides but the issue of inheritance tax and the 7-year rule needs to be considered as well as any additional children/siblings’ right to the inheritance – so rules and contracts must be put into place.

However, if this is not an option and with the growing issue of more parents living further away from their children, it’s advisable that both generations have alternative provisions in place.

It’s important to not bury your head in the sand and get sound financial advice to put plans in place ready for retirement and social care so the worry and stress is not left to your loved ones. With the rising cost of living, many people in their 40’s are understandably not paying into pensions whilst raising young families, but it’s essential to try and save even if you can only put a small amount away each month and have sufficient life insurance plans in place.

It’s all about balancing your current finances whilst planning for your retirement; especially with the age level on the state pension being continually raised every year. If you plan to retire at 65, you’ll need a pension pot worth around £400,000 to provide you with an annual income of £20,000 which is a sizeable amount of pension to work towards.***

There are many ways you can start saving for your retirement and social care provision in your 40’s; paying into a pension, saving any spare cash in ISA’s and investments, paying off loans and credit cards and trying to chip away at your mortgage. Plus trying to avoid taking out any loans or additional mortgages in your later years unless you have guaranteed sufficient funds to cover them.

If you would like financial advice on any of the areas covered in this blog please contact us at info@birchwoodinvestment.com

* https://www.independent.co.uk/news/health/social-care-tax-over-40s-retirement-pension-nursing-home-meals-a8418171.html

** https://www.independent.co.uk/money/spend-save/british-social-care-pension-plans-investment-pay-savings-state-government-a8108686.html

*** https://www.moneywise.co.uk/managing-your-pension/pensions/how-to-plan-retirement-your-40s-50s-60s-and-70s

 

Parents urged to seek financial advice before lending to children

With house prices soaring and mortgage lenders enforcing stricter lending criteria for borrowing; it is becoming more and more difficult for first-time buyers to get on the property ladder; which has resulted in more people turning to the ‘Bank of Mum and Dad’ than ever before.

Back in 1977, the average deposit paid by a first-time buyer was £1,094, 20 years later in 1997 it had increased to £2,200 and by 2017 it had risen to a staggering £25,867 – an increase of 2264% from 1977*.

As a result, industry figures** show that more than one in four UK housing transactions are now financed by the Bank of Mum and Dad, whether it is by loaning their children a deposit, gifting it to them as an early inheritance or being a guarantor on their mortgage.

However, many parents are rightly confused on financial decisions and it is crucial therefore, that parents get the correct advice on loaning or gifting money to make sure they are using the most tax-efficient avenue for both themselves and their children with repayment terms or agreed terms in place. This is to ensure they don’t get into financial problems a few years down the line or during retirement; especially as this age group have retired much earlier than their children will manage to do and therefore, their money needs to last considerably longer.

There are many ways parents can help their children; with the most important one being to teach them and encourage them to have good financial habits from the start. Showing them how to budget from an early age by saving their pocket money, birthday and Christmas money in a savings account is the first step; followed by making sure they keep up with credit card repayments, mobile phone bills, utility bills and any repayment loans they have to maintain a good credit score, which will all help when it comes to getting their first mortgage.

Parents have several options to help if their children are saving but simply cannot get on that first step of the property ladder. Re-mortgaging their own home, setting up a new mortgage or freeing up equity could all help but this is not always the route many parents want to take. Other alternatives are parents getting a joint mortgage with their children on a new property, being guarantors on their children’s mortgage or simply helping them shop around for better mortgage deals or Help to Buy schemes.

Before lending any money, parents should consider if they can afford to give it away; they may be financially secure now but it could all change during retirement. If they do not have the funds in the bank and would therefore need to re-mortgage or release equity, they need to ask themselves would their child want to see them go without or get into debt to help them. Another grey area is the issue of inheritance tax as there is a limit on how much money can be given away. If their child is buying a property with their spouse, partner or even a friend, they need to consider what happens if this relationship breaks down, so it’s imperative that terms are confirmed so all parties know where they stand.

To ensure the right decision is made for all parties and to avoid the risk of relationships going sour, parents need to get clear financial advice by contacting an approved financial adviser. There is a common misconception that financial advice is expensive and as a result many people do not take up the advice they greatly need; but this is generally not the case and sound financial advice can mean mitigating any risks of losing money further down the line.

Birchwood Investment Management Ltd have been advising clients for over 35 years, so if you would like to discuss any of the areas mentioned above please contact us – 01438 840888 or info@birchwoodinvestment.com

*According to a Savills report – https://www.openaccessgovernment.org/how-much-can-first-time-buyers-expect-to-pay-in-2018/44009/

** taken from http://www.financialreporter.co.uk/mortgages/bank-of-mum-and-dad-desperately-need-financial-advice.html

What does MiFID II mean to you?

There’s been a lot of noise in the media this week about MiFID II or to give it its full name “Markets in Financial Instruments Directive” but what does it mean for UK consumers?

The principle behind MiFID II is to produce a transparent, level playing field for all EU residents when purchasing financial products listed in the EU, such as stocks and shares ISAs and pensions.

The focus is on the underlying investments and funds that sit within these financial products, the details provided about what costs are incurred, as well as how suitable these investments are for you, the consumer. The companies providing each investment need to decide on the target market – in other words the types of clients who would be most appropriate for each investment, and the Independent Financial Adviser (IFA) then needs to ensure these are the right fit for clients that fall into that category.

If you’re an existing investor with investments managed on a discretionary basis, then your portfolio  valuation updates you receive periodically will now be provided on a quarterly basis. You may only see your adviser once or twice a year, but under the MiFID II rules, you will receive information on your investments each quarter giving you greater visibility over your finances.

If you’re still yet to take the plunge into the world of financial investment, MiFID II will, put simply, allow you greater transparency, confidence and protection.

There are several other measures introduced by MiFID II that are “behind the scenes” improvements aimed at providing additional security for investors, allowing the regulatory bodies the ability to monitor transactions more closely and identify any that look suspicious.  As a client you’re also likely to hear more messages stating “your telephone call is being recorded”, providing greater clarity in the event of any confusion, with records being maintained for a minimum of six years!

If you are a charity, trust or other form of corporate entity you may also be required to apply for a Legal Entity Identifier (LEI).  If you are buying or selling certain investments you will need to provide your LEI before the transaction can take place. For consumers this is typically your National Insurance number that is used as your unique identifier, the LEI is the equivalent for corporates, although it is 20 digits not 9!

Although MiFID II started on 3 January 2018, there will over time undoubtedly be additional aspects to follow, and clarification on how some elements were expected to be interpreted.

The main message for clients is not to worry! There may be some additional information required before investments can be made, but this is based on increasing the protections you receive on an ongoing basis.