While you’re at home, now is a good time to review your financial plans
If the present circumstances mean you now have some extra time in your hands, you may want to invest some of it reviewing your financial plans. To help you, we have put together a 10-point checklist below:
1. Check your will is up to date:
Research by The Royal London Mutual Insurance Society indicates 54% of adults in the UK do not have a will and six out of ten parents do not have one, nor do they have guardians in place who would look after their children. A valid will can ensure the financial wellbeing of your loved ones after you die, so now is the time to act to ensure you have a will in place and that it reflects and changes in circumstances if you’ve not reviewed it for some time.
2. Review your protection arrangements:
The state of the nation’s health features prominently throughout the day at present. While we are all used to insuring our cars, the contents in our homes, our pets and our holidays, things like our lives and our incomes remain woefully underinsured. We spend some time thinking about what might occur if the worst were to happen, but less time is spent doing anything about it. Do you know how long you could afford to keep up your mortgage payments if you were too sick to work? How your family would cope if the worst were to happen to you? You can easily address these matters and achieve peace of mind with a simple life insurance or income protection plan.
3. Appoint a Lasting Power of Attorney:
Nowadays, people have to be more actively involved in financial decisions about their pensions. If you opt to go into ‘drawdown’, as more people are doing, instead of buying an annuity, you need to continue making decisions throughout retirement. A Lasting Power of Attorney is a legal document that enables you to appoint someone you trust to make decisions and manage your affairs on your behalf. The appointment needs to be made when people are of sound mind and can also be made to cover temporary situations – if they are in hospital, for example. Without an LPA, an application must be made to the Court of Protection to appoint a deputy. While the costs of setting up and registering an LPA can be a few hundred pounds, the costs of applying to the Court of Protection and ongoing costs of a deputy can be significantly more and often come at an emotionally draining time.
4. Review your Child Benefit entitlement:
If you have experienced a fall in income, for example you are self-employed or have been furloughed, and you have children under the age of 16 (or 20 if they are in approved education or training), you may now be eligible to make a claim for Child Benefit. If you and your partner each earn less than £50,000 a year, you will receive the full amount of Child Benefit without having to pay any of it back. Even if you are not eligible for Child Benefit, if one spouse if a low earner, it is important that a claim is made as this will award ‘National Insurance Credits’ which count towards your State Pension entitlement.
5. Review your State Pension entitlement:
Many overlook the importance of the State Pension although, for a married couple with full entitlement, this is worth £18,220.80 a year (just over £1,500 a month) at present. This goes some way to meeting the committed expenditure needs of most couples. If you have gaps in your employment history, you can make these up by making voluntary Class 3 National Insurance Contributions. You can check your State Pension entitlement by clicking here. You will need a Government Gateway ID which takes 10 mins to obtain if you are not already registered.
6. Review your pension contributions:
It seems like a distant memory now, but part of the Chancellors budgetary giveaway was to increase the threshold at which people start to lose their Annual Allowance. Previously, those with earnings in excess of £110,000 may have been unable to pay in the full £40,000 per year into a pension. This earnings threshold has now increased to £200,000, thereby releasing thousands of workers from being affected. If you were previously affected by these rules, you should review the level of pension contributions you are making as you may now be able to pay in more without adverse impacts.
7. Review your bank balance:
Do you have excess cash in the bank? This might be held in notice accounts, savings accounts or in cash ISA’s. With recent interest rate cuts, bank account interest remains below inflation so keeping money in cash is a sure-fire way of ensuring that these funds lose value when adjusted for inflation. Markets have fallen further and faster than they have in a long time: although they have recovered some ground from in recent weeks, markets remain more than 20% below their peaks, meaning now could therefore be considered a good time to invest.
8. Combine your pensions:
At the point of retirement, most people will bring together all their accrued pension pots. This can help you get a clear overall understanding of your total pension savings and reduce admin. Do you have old pension pots that need to be consolidated? If so, get in touch and we can help you with this.
9. Review your income:
If you are retired and reliant on pension and investment income, you should review your income level in light of markets falling in recent weeks. Is the present level of income being taken sustainable in the long term? If not, it may be a good time to review your income needs so your pensions and investments do not deplete.
10. Review your tax efficiency:
Have you reviewed your overall level of tax efficiency? If you are earning between £100,000 and £125,000, did you know your marginal rate of tax is 60%? Did you also know that this can be easily avoided by making a pension contribution? Have you used your annual Capital Gains Tax allowance? Are you eligible for and have you used the marriage allowance?
If you have any questions or want to talk to a financial adviser about your financial planning, including anything you’ve read in this article, you can reach us here. Our financial advice services can be provided on a COVID-19-safe way, and we’re happy to arrange telephone consultations and video chats using services like Zoom, Teams and Skype.