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financial planning in your forties

It’s well known life begins at forty. Doesn’t it?

It should be an exciting decade, full of plans and aspirations. It’s also likely to be a time of optimum earning potential.

What’s more, it’s a crucial decade to take a step back and make sure your finances are on track to meet your goals.

There’ll be some decisions you’ll already have taken in your twenties or thirties, which will have had an impact. You may have bought your own home, for example, or put some savings away in cash, investments or pensions.

If things don’t look quite as rosy as you’d hoped, though, your forties are a good time to take stock, as there’s still time to make adjustments and give your investments time to grow.

Don’t forget, whatever savings you can make now will enable you to pursue your dreams later on.

Here are four key tips for shrewd financial planning at this important time of life.

Budget ruthlessly

Just because life may feel comfortable with regular pay rises and bonuses don’t fall into the temptation of spending more than you need. Do you really need that Costa coffee or M&S lunch every day?

Apps like Money Dashboard or Moneyhub can be helpful in showing you where your money’s going. Simple steps like cancelling subscriptions or switching bill providers can make a significant difference.

Historic studies show that investments usually outperform cash savings so any disposable income you can invest will be beneficial. If you can put money aside in a pension you’ll also be taking advantage of the tax relief available. Make sure you use your ISA allowance too for more accessible funds.

Carry out a protection audit

Think about what if the unexpected happened. Your forties are a time of life where you may find yourself part of what’s known as ‘the sandwich generation’ i.e. caring for elderly parents at the same time as looking after young children. This can put extra pressure on you. Make sure you’re protected should the worst happen by ensuring you have a good emergency fund in place. Also think about critical illness cover and life insurance.

Property plans

Your home will be a fundamental part of your financial planning at this time of life. If you feel you need a larger property, these are likely to be your peak earning years so now is the time to secure the best mortgage you can and find your dream home. On the other hand, if you’re quite happy where you are, it may be a good time to remortgage to get a better deal.

Family spending

Everyone’s situation is different. You may have children at university or you may still be having to pay for nursery fees. Whatever your position, make sure you budget accordingly and allow for inflation, especially if you’re paying private school fees. Work out the priorities for your family – the best education now or a house deposit in the future. It’s important not to derail your own life savings for the sake of your children as no one will benefit in the long run.

By doing some sound financial planning now, you’ll have more hope of continuing in the style you want to live, well beyond your forties.


what is the real rate of inflation?

The current projected figures for 2017 see inflation set to grow by between 2.5% and 3%, but there are already reports surfacing that this figure is misleading, with most families set to experience much higher increases than this, thanks to the ‘real rate of inflation’. But what does that actually mean and why is the real rate so different to the projected figure?

The official rate of inflation has been calculated by the government using the consumer price index (CPI) since 2003. The CPI is worked out by looking at the prices of set goods and services considered by the Office of National Statistics to be representative of how an average person in the UK spends their money. However, as with any average measure, some people will inevitably experience their own rate of inflation above or below the CPI.

Whilst the CPI was adopted due to its similarity to how other countries work out their rates of inflation, thereby making it easier to compare UK inflation to that of other nations in a meaningful way, it doesn’t include a number of key figures in its calculation. For example, CPI doesn’t include housing costs or council tax increases, both of which have seen faster increases than inflation for a number of years. The previous official measure of inflation, the retail price index (RPI), did include these and has generally been around 1% higher than CPI over the last couple of years. RPI is also important as, whilst no longer classified as a national statistic, it is still regularly used by employers and trade unions when negotiating wages.

There’s also the variation in what different social groups will spend their money on. Food, energy and petrol prices have individually seen much sharper rises than the CPI, which means that people who spend more of their money on these goods and services will experience a considerably higher individual rate of inflation than the national average.

So whilst the official rate of inflation is forecast to be around 3% this year, the real rate of inflation is set to rise by a greater amount than that – which unfortunately means that many families will find their income squeezed a little more for the foreseeable future.

Help To Buy vs Lifetime: Which ISA is best?


Set to be introduced in April 2017, the Lifetime ISA essentially offers an alternative to the Help To Buy ISA. With two competing options on the table, it’s important to know which is best for you and your needs, as whilst they have some similarities, there are also key differences between the two.

The Help To Buy ISA allows you to save up to £200 each month to save for a deposit on your first home. The government then boosts your savings further to the tune of 25% up to a total limit of £3,000, as long as you’re a first time buyer purchasing a property priced up to £450,000 in London and up to £250,000 everywhere else in the UK. There is no minimum deposit each month, and you’re also able to pay in £1,000 when the account is opened that doesn’t count towards your monthly savings.

Available up to Autumn 2019, anyone aged sixteen or over is entitled to open a Help To Buy ISA. The accounts are limited to one per person, which means both people in a couple can have an account and benefit from the bonus.

The new Lifetime ISA is based on similar principles but has several important differences, with the most important being that it can be used either to save for purchasing your first home or as money put away as a pension for later in life. There’s no limit on how much you can save each month as long as you don’t go over the yearly cap of £4,000.

Again, the government offers a 25% bonus, but this is paid whether you use the money to purchase your first home up to a price of £450,000 anywhere in the country, or keep it for later in your life. Any money that’s taken out before your 60th birthday and not used for purchasing your first home will forfeit the government bonus plus any growth or interest earned from it, as well as incurring a 5% charge. If you wait until after you’re 60, you can take out everything tax-free.

As you will be allowed to have both a Lifetime ISA and a Help To Buy ISA, you can choose to do this, but you will only be able to use the bonus from one of the two accounts to buy a home. As the Lifetime ISA is essentially replacing the Help To Buy ISA, it makes sense to opt for the newer style of account after they are introduced next April. If you want to set up an ISA for your child, however, you could consider opening a Help To Buy ISA on their 16th birthday then transferring the savings to a Lifetime ISA two years later which will allow you to take full advantage of the government bonuses

As always, seeking professional advice to establish what is right for you and your objectives has to be paramount.  This article is intended to give information only and not advice.

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Sources: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508117/Lifetime_ISA_explained.pdf, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414027/FTB_factographic_final.pdf

How much money do I need?

Budgeting for retirement or as we like to say ‘ change of circumstances’ can be more difficult than budgeting whilst you’re still working. Some costs may increase, such as heating your home, and you’ll have to work out exactly how much income you will be receiving from your pension. The average British wage is about £26,000 – to replicate that in retirement you’d need a pension pot of more than £300,000. However, according to ‘Which?’ it’s unlikely that you’ll need as much money in retirement as you did while you were working, although the amount clearly depends upon your own hopes and expectations of how you will enjoy your life!

When sitting down to plan your budget, it’s a good idea to first get some idea of your current spending. A report by ‘Which’ suggests keeping three months’ worth of bank and credit card statements, payslips going back three months and three months of shopping receipts – remembering to factor in one-off spends like birthdays, Christmas, holidays and car repairs. Then work out where you think you’ll spend more once you’ve retired – because your situation is changing so will your spending habits. You’ll need to compare this with how much income you’ll be getting in retirement (from pensions, benefits or savings), to find out if there are any shortfalls.

The above simple plan is a long way off proper financial planning, but it should provide a handy starting point for indicating the income you might need in your retirement. Once you know that, we can set about working out exactly what you do need to make sure you can do everything you want in your later life.

It is also worth bearing in mind that the sums of money you spend on certain things can change for the better in retirement. The following are again good suggestions to start considering.

  • Have you paid off your mortgage? If so, that will significantly reduce your monthly spend. However, if you’re still renting in retirement, you’ll have to factor that cost into your outgoings when budgeting.
  • Have your children moved out? Raising a child until they’re 18 costs almost £220,000 in total – so your costs should come down significantly once they’ve flown the nest.
  • You’ll save on commuting. The average annual rail cost of commuting into London is £3,800, and that’s without factoring in parking at train stations.
  • Public transport. Over-60s get free off-peak travel on buses. And if you live in London, you can claim a Freedom Pass, which means you can use London’s public transport for free.

Some spending in retirement can typically go up, however:

  • Leisure spending – you’ll probably be spending more money on hobbies and holidays. Think about how many holidays you’ll want to take per year and remember to take advantage of senior discounts on dining out and theatre tickets.
  • Travel insurance – Which? research has found that people over 65 tend to pay more because statistically, they’re more likely to fall ill whilst on holiday. Shopping around will help secure you the best deal.
  • Heating. As you’ll be spending more time at home, the chances are bills will be higher. The Winter Fuel Payment, currently available to people born on or before 5 July 1952, could get you between £100 and £300 tax-free towards your fuel bills.

Planning for Retirement needs to go beyond this sort of initial informal research to fully include careful attention to Lifestyle Planning, but the above initial considerations should help you to start thinking about whether your current savings are going to be enough to do everything you want to do with your retirement.

Sources: www.which.co.uk (Published advice on the website: January 2015)


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The Future of Annuities

What role are annuities likely to play in retirement planning in the light of pension freedoms coming into effect from 6 April 2015? There has been much debate about annuities, particularly since Chancellor George Osborne announced a number of changes to pensions from April 2015, welcomed by Standard Life in a recent bulletin.

Those changes mean pensions are becoming more flexible, with savers being given the freedom to control the pension funds they’ve worked hard to save – it is their money after all! They can take those funds as and when they choose to from the age of 55. This means people will have more options than simply buying an annuity at retirement, as was the case for many previously.

According to Standard Life, that doesn’t mean we have seen the last of annuities – far from it. True, you can’t change your mind when you buy one, but they do have the advantage of giving the security and certainty of a guaranteed income for life, or for a period of time of your choosing. In addition, as annuities work like insurance, if you have serious health issues you’ll benefit from enhanced rates. There’s also the added attraction that some annuities guarantee an income for your spouse too, in the event of your death.

On the other hand, they don’t offer much in the way of flexibility. What if you needed a lump sum to cover an unexpected event, a new car, or wanted to help pay for one of your grandchildren to go to university? For that reason, and with the pension changes now giving savers many more options, we’re likely to see annuities becoming part of a more varied pensions mix, alongside lump sum withdrawals and flexible income, or what is known as drawdown.

So using some, not all, of your pension funds to buy an annuity would give you a guaranteed level of income and peace of mind that life’s essentials were covered. The remaining funds could be kept invested in a pension to provide a flexible income and lump sum withdrawals when you need them.

Another trend we could see emerging is savers keeping their options open for longer by choosing flexible income and buying an annuity in their later years when they’ll get a better annuity rate – and the reassurance of a guaranteed income. One thing is certain – the way we look at our retirement planning is likely to never be quite the same and taking into account individual circumstances and requirements has never been more important!


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Quick tips on financial planning for thirty-something professionals

After age 30 it is probable that financial planning will be upped one or two gears and become a far more intense matter.

It is worth reflecting how things have changed over the past few generations; more and more people are going to universities, families are having children later, are buying property (and by definition therefore taking on mortgages) at later ages and everyone is facing up to a longer life and a (much) later retirement. All at the same time as an explosion in the number of people working for themselves and a rapid disintegration in occupational pensions.

Overall, this leads to one conclusion; having a structured financial planning approach to navigating through these “mid-years” (roughly defined as from 30 to 50) is more important than ever before, arguably even critical.

What are the main aspects?

One: have a plan. It may seem obvious, but many people don’t!

Two: assume that the future will be different to today and plan accordingly. There is no guarantee that interest rates will remain so low, that property will always go up, that the government lifeboat (for example universal healthcare and pensions) will always be there, to name but a few. It is only one generation since interest rates of around 13% were commonplace. O.5% seemed inconceivable. Any decent financial plan will cater for different future scenarios.

Three: revert to the tried and tested; save first, borrow second. Only borrow what can be afforded. Any financial plan will have saving as its centre point.

Four: maximise everything. Ensure (as much as one can) that there is the right provision in place to protect the family in the event of the unforeseen (death, serious illness, loss of income); that any investments (including, and maybe especially, pensions) are invested to get the best growth. Again, it may sound obvious but many people leave their invested monies in under-performing areas for decades at a time; structure plans and investments to minimise tax, particularly into the long term (for example, is there a better ‘tax haven’ than ISAs?) and then with borrowing make sure that the costs of the borrowing are low and that they can be afforded even if these costs unexpectedly rise.

Finally, spend time financial planning. Find a plan which works and write it down; work with the best professionals to execute this plan and then constantly keep it under review, adjusting where required to cater for individual circumstantial changes as well as wider economic changes. Most people, historically, have spent more time planning their annual holiday than planning their finances. Spend time on planning the holiday by all means, but more time on the longer term financial plan.


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The first nine months of Help To Buy

The Help to Buy mortgage guarantee scheme opened on 8th October 2013 and has since been available across the United Kingdom. Under the scheme, the government offers lenders the option to purchase a guarantee on mortgage loans where the borrower has a deposit of between 5% and 20%. The scheme can be used for mortgages on both new build and existing homes, by first time buyers, home movers and those remortgaging.

In order to qualify for a loan supported by the Help to Buy mortgage guarantee, there are a number of eligibility criteria which are set out in the scheme rules.

The guarantee compensates participating mortgage lenders for a portion of net losses suffered in the event of repossession. The guarantee applies down to 80% of the purchase value of the guaranteed property covering 95% of these net losses. The lender therefore retains a 5% risk in the portion of losses covered by the guarantee. This ensures that the lender retains some risk in every mortgage originated.

In the first 9 months of the Help to Buy scheme:

  • 18,564 mortgages were completed with the support of the scheme. Of these, 79% were purchases by first time buyers.
  • The total value of mortgages supported by the scheme was £2.7 billion.
  • The mean value of a property purchased or re-mortgaged through the scheme is £153,148, compared to a national average house price of £265,000.

Mortgage completions in Scotland, Wales and Northern Ireland accounted for 19% of the total. In Scotland and Wales the number of mortgage completions with the support of the scheme was proportionally higher than in the UK as whole, when compared to total mortgage completions. Completions with the support of the mortgage guarantee scheme in Northern Ireland made up 1% of total UK completions supported by the scheme.

Mortgage guarantee completions in England were proportionally lower, with 81% ofcompletions compared to an 86% share of overall UK residential mortgage completions.

At a regional level, a higher proportion of mortgages were supported by the scheme in the East and North West. London and the South East accounted for 19% of all completions supported by the scheme.

Sources: www.gov.uk (Quarterly Statistics – October 2013 to June 2014



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The Risk and Cost of Flooding

The risk of flooding in the UK is growing and could seriously affect the value and amenity of your home or business premises. It is suggested by the Royal Institute of Chartered Surveyors (RICS), amongst others, that there will be an increasing number of floods in the future, due to changes in weather patterns, the amount of new buildings on low-lying areas and other local factors.

The RICS paper which formalised these claims went on to say that many properties which have not previously been at risk of flooding, now are. Of the 28 million homes in the UK, over five million are currently at risk, as well as over 300,000 business premises and many more public and utility services buildings. For most of these properties, the risk of being flooded in any one year is still small but for several hundred thousand properties, especially those which have been flooded in recent years, the risk is more significant.

The increasing risk of flooding can reduce the value of your home or business premises and may make it more difficult and expensive to get insurance cover. A flood can threaten your safety, cause serious damage to your property and its contents, and will result in many months of dislocation and disruption. A flood can happen to any property, from one or more of these causes. For most property in the UK, the risk is still small. Some properties are more at risk than others due to their geographic location and particular local situation.

How will the flood risk affect the value and insurability of my property?

The value of a property at risk from flood is less than that of a similar property that isn’t at risk. Flood risk will affect the value for two reasons. First is the impact of a flood on the continued use of the premises, the health and safety of the occupants and any consequential damage and disruption. The second is obtaining building insurance cover for the property. If it is difficult to arrange cover it will affect the ability to arrange a mortgage for the property. As building insurance is so important in determining whether a property is mortgageable and therefore the market value of the property, owners and prospective purchasers are advised to verify this cover is provided and maintained by determining the property’s flood risk. The reduction in value may range from negligible to severe, depending on the particular circumstances of the property’s location, situation, type of construction, and flood defences, both to the geographic area and to the property in particular. The impact on value can be reduced by ensuring better flood resistance (flood defences) are in place and by increasing the flood resilience of the property and its contents – making the property construction and facilities less prone to damage by flood.

Sources: www.rics.org.uk

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Annuity review highlights importance of advice and shopping around

The startling headline finding from The Financial Conduct Authority’s (FCA) recent review of the annuities market proved to be the fact that some 80% of people who purchased an annuity from their pension provider could have received a better deal from an alternative source.

The report found that the annuities market was not working as it could for consumers, with many reporting that they found it difficult to review the suitability of the annuity offered by their pension provider, when compared to the alternatives available.

In monetary terms, the FCA found that, on average, retirees who buy an annuity from their pension provider miss out on around £71 per year. With the average length of retirement being around 19 years, that figure works out to meaning retirees are over £1,300 worse off: a figure that could represent a very nice holiday for many, an investment on behalf of the grandchildren or one of several other very rewarding ways to spend a retirement income.

As part of their findings, the FCA have launched a more in-depth review of competition within the annuities marketplace to assess how it could be better organised with consumers in mind.

The message though is clear: shopping around when purchasing your annuity can really benefit you in your retirement years and, if you find the marketplace too complex to navigate on your own, a financial planner may well be able to assist.

Taking account of your retirement goals and your current financial situation, we’ll look at your various options for living your desired lifestyle in retirement, including whether purchasing an annuity would be a suitable solution and, of course, then assessing which annuity would be best for you.

We’ll also be keeping a close eye on the FCA’s further review of the market, to see how it will impact annuities in the future and how that would work for consumers.

Sources: fca.org.uk

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Hints and Tips for the Tax Year End

As always, the end of the tax year is an important date in anyone’s financial planning calendar. In most cases, tax allowances end with the tax year: making the best use of them while they are available can mean a big difference to the eventual returns from your savings and investments.

We have therefore put together some hints and tips which will hopefully guide your financial planning as the end of the tax year approaches – but as always, if you have any questions on any of the points below don’t hesitate to get in touch with us.

  • First and foremost make full use of your Individual Savings Account (ISA) allowance. The limit for 2013/14 is £11,520 but if you don’t use it by April 5th it is lost. Husbands and wives both have an allowance, and from April 6th the limit will rise to £11,880. If you are saving for children don’t forget to make use of Junior ISAs.
  • An often overlooked allowance is your annual Capital Gains Tax allowance. The amount for the current year is £10,900 (rising to £11,000 in 2014/15) and again both husband and wife have the allowance – so there is scope for transferring assets between you in order to reduce your tax bill.
  • If you believe that your estate might be liable for Inheritance Tax (the current limit is £325,000, which is frozen until 2017/18) then it makes sense to do something about it. Inheritance tax is an area where a little planning can go a long way. First of all you can make annual gifts of £3,000 free of any tax liability and also use any unused allowance from the previous year. You can also make gifts from regular income, providing they don’t reduce your ‘normal’ standard of living. It’s also possible to make IHT–free investments, although that is probably outside the scope of these relatively basic notes.
  • An increasing number of employers now offer arrangements whereby employees can sacrifice salary for approved share options or pension contributions. It may be worth talking to your employer to see if this is possible, as it can be very tax efficient for both the employer and the employee.
  • Irrespective of the position with your employer it always makes sense to review your pension arrangements, particularly with the Government reducing the Pension Lifetime Allowance from 6th April 2014. The reduction to £1.25m has potentially serious implications for many people and if you feel that you may be affected you should get in touch with us.
  • You can also start pension contributions for your children, even if they do not have any earnings. A net contribution of £2,880 will be grossed up to £3,600 with tax relief – a generous donation from the taxman!
  • If your spouse doesn’t work – or earns less than the annual personal allowance – you should consider moving assets into his or her name. This is a perfectly legal and perfectly sensible tax planning move: again, we will be happy to give you advice on how to do this.
  • Remember that interest paid on bank and building society deposits will have tax deducted at 20%. If you do not pay tax then you can sign a form to have the interest paid without the deduction of tax. Alternatively, you can submit a repayment claim to HMRC.
  • Finally, make a will. Over half the UK adult population do not have a valid will and dying without one (dying ‘intestate’) can have serious implications for your financial affairs. Don’t assume everything will go to your spouse – it may not! A good will can minimise tax and give your family security and protection. We will discuss the points that you need to consider and we’ll work with your solicitor to make sure that your will accurately and clearly reflects your financial planning.

Hopefully the above points will help you plan for the end of the tax year and make the most of the allowances that are available.

Remember, they largely disappear at midnight on April 5th (which is a Saturday this year, so for practical purposes the last day of the financial year is Friday April 4th.)

As above, if you have any questions on any of these points or suggestions then we are only a phone call or an email away


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