Category: News

How often do you discuss your finances? In the UK, talking about money and our long-term financial plans are often still seen as a taboo subject. Breaking down this barrier could help you and those who are important to you make better money decisions.

Talk Money Week will take place between 8–12 November and aims to encourage people to talk more about finances. From discussing pensions in the workplace to saving goals with family, having an open conversation about money can be a positive thing. Despite this, Talk Money Week research found that 9 in 10 adults, the equivalent of 47 million people, don’t find it easy to talk about money, or don’t discuss it at all.

Talking about money can be difficult, but according to research, people who talk about money:

• Make better and less risky financial decisions
• Have stronger personal relationships
• Help their children form good lifetime money habits
• Feel less stressed or anxious and more in control.

It’s a step that can help improve your financial wellbeing and long-term resilience. It doesn’t just help you, either – it can support the financial security of the people around you too.

If money isn’t something you talk often about, it can be difficult to start conversations and get into the habit. Here are three reasons to start doing it now.

1. Take control of your finances and goals

Money-related stress is common. Research from CIPHR found that 79% of people feel stressed at least once a month, and money was the top cause of this. Some 39% of people said money was the thing they worried most about.

Talking about your concerns can help your worries seem more manageable. When you’re stressed, it can be difficult to make decisions and understand what your options are. Talking about it can help you create solutions and take control of your finances.

You shouldn’t just speak about concerns, either; talking about what money will allow you to do can help motivate you and keep you on track. For instance, talking about a savings account that will help you book a dream trip, or how increasing your pension contributions will mean you can retire early, are just as important as sharing the things you worry about.

2. Make better financial decisions

Financial decisions can seem complex and, at times, it can be difficult to understand what your options are. In other cases, you may take certain steps simply because that’s what you’ve done in the past, even if it’s not right for you now.

Perhaps you save into a savings account with your current account provider because that’s what you’ve always done. But a conversation with a colleague could highlight that there’s an alternative account that’s offering a higher interest rate to help your money go further. Or a conversation may mean you start to consider investing some of your savings rather than holding cash.

Talking about money can help you look at your finances from a different perspective and mean you make better decisions.

3. Pass on your financial knowledge

Over the years, you’ll have picked up your own body of financial knowledge. By making it part of everyday conversation, you can help people around you make better financial decisions too. Perhaps you could highlight why paying into a pension early makes sense to younger generations, or have some tips for starting an investment portfolio.

It can also help you foster a relationship where loved ones feel comfortable coming to you to ask for advice or share their concerns. It can mean they’re less likely to bury their head in the sand if they’re struggling or to miss opportunities.

Having open conversations about money and how it can help you achieve goals can help loved ones make better decisions.

When should you talk to a financial planner?

Talking to loved ones about your finances can be beneficial. However, there are times when working with a financial planner can help you get the most out of your assets. A professional can help you understand the complexities of things like tax allowances, as well as how the decisions you make now will affect your goals.

By working with a financial planner, you know you can have confidence in your plan. It can be useful at any point in your life, including milestones like retiring, and is a step that can ensure you remain on the right track long term. If you’d like to arrange a meeting, please contact us.

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

You may have thought about who you’d like to benefit from your assets when you pass away and written a will to ensure your wishes are carried out. However, you may have overlooked what you’d like to happen to your pension.

As you’ll be paying into your pension over your working life, it may be one of the largest assets you own. Yet, it’s easy to forget about it when planning what you’d like to happen to your estate, especially if you’re not drawing an income from it yet. If you have a defined contribution (DC) pension, it’s essential you complete an expression of wishes to ensure your loved ones benefit from your savings.

What’s your pension worth?

According to the Telegraph, after a lifetime of saving, the average UK pension pot stands at £61,897. That’s a significant sum that could have a positive impact if left to loved ones. Depending on your circumstances, your pension value could be much higher than this figure, particularly when you consider investment returns.

It can be difficult to understand how your pension will change over time. During your working life, you are likely to still be making contributions, as well as benefiting from tax relief and employer contributions. As most pensions are invested, investment performance will also mean the value of your pension will rise and fall.

Once you retire, you may begin withdrawing an income from your pension, and it may still be invested. As a result, valuing your pension can be challenging. But looking at how much it’s worth now and how it could change in the future demonstrates why making your pension part of your estate plan is important.

The introduction of auto-enrolment, which means the majority of workers are automatically enrolled into a pension, means more workers than ever will need to consider how they’d like to pass on their pension.

Completing your expression of wishes

While your pension may be an important part of your wealth, it’s not covered by your will. This is why you need to complete an expression of wishes.

An expression of wishes is simply a statement that tells your pension provider who you’d like to receive your pension savings if you die before accessing the money. It’s something that can be difficult to think about, but it can help you make provisions for those who are most important to you if something did happen.

Without an expression of wishes, the pension trustees will make a decision, but it can make the decision harder, and it may not align with your choice. It’s important to note that pension trustees may take other factors into account when deciding who receives your pension. This may include whether you have any dependents, but the trustees must do their best to accommodate your wishes.

If you haven’t completed an expression of wishes, it’s simple to do. If you have an online account for your pension provider, you can usually complete a form within minutes. If you don’t use an online account, you can get in touch with your provider to send you the relevant paperwork.

You will need to complete an expression of wishes for each pension you hold. This could be the same person, or someone different. You can name more than one beneficiary for each pension, allowing you to split the sum between your children, for example.

If you’ve changed jobs frequently, you may have several pensions. It’s important you keep track of each and complete an expression of wishes. In some cases, it may make sense to consolidate your pensions to make them easier to manage. If you’d like to discuss this, please get in touch.

How leaving your pension to a loved one could reduce an Inheritance Tax bill

If your estate could be liable for Inheritance Tax (IHT), leaving your pension to loved ones can make sense.

The amount of tax paid on an inherited pension depends on the age you pass away and how the beneficiary accesses it. However, it’s usually a lower rate than IHT.

For the 2021/22 tax year, the nil-rate band is £325,000. If the value of your estate is below this amount, your estate will not be liable for IHT.

Many people can also take advantage of the residence nil-rate band, which increases the threshold if you’re leaving your main home to children or grandchildren. For the 2021/22 tax year, the residence nil-rate band is £175,000. In effect, this means most people can leave up to £500,000 before their estate is liable for IHT.

However, the standard IHT rate is 40%. So, if you do exceed these thresholds the tax can significantly reduce what your loved ones receive.

In contrast, a beneficiary is likely to face a much lower rate if they inherit your pension. For example, if you passed away before you turned 75 and the beneficiary took your pension as a lump sum, no tax is usually due. If you passed away after the age of 75, the beneficiary is likely to pay Income Tax at their nominal rate, which may be lower than the IHT rate.

The tax due on inherited pensions can seem complex and will depend on personal circumstances. If you’d like to discuss what it could mean for you or your beneficiaries, we’re here to help. However, if your estate could be liable for IHT and you have other assets to create an income in retirement, it can make sense to leave your pension so that it can be passed on.

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

The Financial Conduct Authority does not regulate estate or tax planning.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

Your pension might not be something you think about often. Unlike your current account or even ISA, it could be decades before you’ll be able to access it. So, it’s not surprising that keeping track of pensions isn’t a priority for many people. However, it’s important for effective retirement planning and ensuring you’re on track. For some, pension consolidation makes the task easier.

For many workers, pensions are becoming more difficult to keep track of for two reasons:

1. Under auto-enrolment, most employees will now benefit from a workplace pension. While this means more people are saving for their retirement, it also means more workers now need to keep track of their pension savings.
2. Alongside auto-enrolment, it’s become more common to switch jobs. According to Scottish Widows, the average employee will change jobs 11 times in their working life. That means the average person needs to keep track of multiple pensions.

As it’s not something you’re likely to think about every day, losing touch with a pension can be easier than you think. Not updating your address when you move can mean it’s easy for small pension pots to slip your mind.

In 2020, the Association of British Insurers (ABI), found just 1 in 25 people consider telling their pension provider when they move home. As a result, ABI estimated that there are around 1.6 million “lost” pensions, worth £19.4 billion in total. While small pensions may seem like they’ll have little impact on your retirement, they can help you reach goals, especially when you have several.

If you’re reviewing your pensions, the first thing to do is make sure you have the details for them all. If you’ve “lost” a pension, the government’s tracing service can help you track it down.

Why pension consolidation is worth thinking about

Pension consolidation means combining pensions into one pot. It can make it far easier to keep track of your retirement savings.

Having all your pension savings in one place means it’s easier to manage and see if you’re on track to reach retirement goals. It can also help you understand how to access your pension at retirement and create an income that suits you.

For some people, consolidating pensions could also reduce the total fees paid. It could mean more of your money is invested to deliver a larger sum when retiring.

In most cases, consolidating your pensions is relatively straightforward. However, the Scottish Widows research found that 1 in 10 savers had no idea it was an option, and 12% said it was too much hassle.

So, it’s not surprising that almost three-quarters of Brits (72%) would like to see a new system that automatically consolidates their small pension pots as they move jobs.

While this could make managing pensions simpler for workers, it’s not something that will be introduced any time soon. As a pension saver, you’ll need to take control and consolidate your pensions yourself. To do this you’ll need to contact the pension provider you want to transfer to and check they will accept the transfer and then complete a form.

Before you consolidate your pensions, there are two things you need to think carefully about: which pension provider to move your savings to, and whether it’s the right option for all your pensions.

1. Choose a pension provider to transfer to

If you want to consolidate your pension, you’ll need to choose a pension provider to move your savings to. This could be a provider that already holds some of your savings or a new one.

At first glance, pension providers can seem similar. However, things like fees, fund options, and investment performance, can all have an impact on your savings and, in the long term, your retirement. It’s important to choose a provider that makes sense for you. Remember: your pension is a long-term investment, so you should consider the impact over the time frame you’ll be saving into a pension.

We can help you compare pension providers and answer any questions you may have when deciding where to place your retirement savings.

2. Check if transferring out of a pension is right for you

Pension consolidation can make it easier to manage pensions, but you should review your existing pensions first. In some cases, transferring out of a pension could mean you lose valuable benefits.

Some pensions, for example, will allow you to take a lump sum or income earlier than normal, or provide a pension for your spouse. If you transfer out, you’d lose these benefits, and another provider may not offer them. Assessing your existing pensions to understand what they offer and how the benefits could fit into your retirement plan is a crucial step to take to ensure you make the right decision for you.

If you need help managing your pensions and understanding what they mean for your retirement, please contact us. We can help you understand if consolidating pensions makes sense for you and how to proceed if it does.

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. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.