Why wait to seek financial advice?
Discussing personal finances is a sensitive topic, and one that most people tend to avoid – unless we’re telling friends and family about an amazing deal we’ve found! But what we tend not to disclose is our financial concerns. Now, that might be because we don’t have any. But I don’t think that’s the case.
A study into the financial behaviour of UK adults from the Money and Pensions Service, in November 2020, suggested that around 29 million people don’t feel comfortable talking about money, despite almost half of them admitting they regularly worried about it1. I find this bizarre because, as Liza Minnelli famously once said, “money makes the world go round”. And it’s also the thing that carries us through life, from being dependent on our parents, then potentially having dependents of our own, and on to relying on it during the later stages of our lives, when we may not have another source of income.
With this in mind, I’d argue that, while discussing your finances with everyone may be uncomfortable, it’s never too soon to consult a financial planner and enlist their services to help you plan effectively for your future – especially for those nearing or already in retirement.
Of course, deciding when and if to take financial advice can be difficult. But there are some key moments in life when doing so really makes sense. Below, we’ve highlighted several life changing moments that may be an especially good time to ask a professional to help steer you through:
1. Getting married or entering a civil partnership
For many, getting married is one of the happiest days of their lives and, in the eyes of the law, they’ve become one entity. But with that, comes the perfect opportunity for couples to consider their future finances.
Married couples often benefit from additional tax-free allowances, or they can at least pass their unused allowances to their significant other. Are you fully utilising your tax-free income, capital gains, savings and pension contributions, to name a few? We’re well aware that tax rules are subject to change (particularly given the current political climate, where we’re waiting for our new Prime Minister and subsequent Chancellor to be named), so it’s important to assess your current allowances and ensure you take advantage of them.
On the pensions aspect in particular, it would certainly be worth reviewing your death benefit nominations, to ensure that your loved ones are receiving the lump sum in the unfortunate event that you pass unexpectedly.
2. Separating from a partner
Breakups are never easy, and when you factor in a legally binding contract, such as a marriage or civil partnership certificate, they become much more complex. In 2020, there were 103,592 divorces granted in England and Wales, according to the Office for National Statistics2, and data analysis from NimbleFins suggests that a third of marriages over the past 50 years, in England and Wales, have ended in divorce3.
A divorce agreement can involve many complex processes, particularly when trying to split or settle estate, pension and investment arrangements. Experienced and skilled financial planners will work alongside your family lawyer to ensure the best outcomes for you and the other party involved, which is exactly what we do at 7IM. We also offer cashflow modelling capabilities, allowing you to receive a visual representation of how your wealth may look ‘post-settlement’ across a number of different scenarios, perhaps helping to inform discussions on your financial settlement negotiations.
The modelling tool will certainly benefit those nearing retirement, especially if their wealth is about to dip due to the separation, if they’re going to have to share their accrued pension wealth, or perhaps receive a share of pension assets for the first time.
3. Investing in your children
For many parents, planning for their children’s future is a priority, and enlisting the support of a financial planner could allow you to do that as best as possible. There are a few different savings vehicles that can be used to start saving for your children, whether in the form of a Junior ISA, which carries a tax-free allowance of £9,000 per year, or a Junior Self Invested Personal Pension, carrying a £3,600 gross allowance per year. Or you can utilise both. It’s also important to remember that these allowances are per child, so if you have more than one, you can start investing in all of their futures.
4. Inheriting money
Receiving a lump sum can be life changing for many people. But deciding what to do with it does carry some pressure and trying to make that decision alone can be daunting – particularly in the current climate, when interest rates are climbing, inflation’s soaring and the stock markets are challenging.
But what do all these elements have in common? They’re events that are happening now and it’s likely that your finances won’t have been through this combined turmoil before. A lump sum inheritance can give you options and there’s no ‘one size fits all plan’. It’s important to speak to a financial planning professional to help you build your plan for your future. This could be maximising your allowances, topping up your savings, repaying debt, or a combination of these and more. It’s never too soon to start planning for your future and at 7IM, we firmly believe in the adage, ‘the early bird catches the worm.’
Following the introduction of Pension Freedoms in 2015, savers now have more options than ever when it comes to deciding what to do with their pension pots once they reach 55. Do you take out a lump sum? Do you purchase an annuity? Or do you invest in alternative solutions that offer more flexibility? You’ll have to answer these questions all while trying to calculate how much money you’ll need and how long it will need to last. All in all, navigating the complex pensions universe is no easy task, so enlisting the support of a professional could be a wise decision.
Recently, my colleague Yasmin Wales, a fellow Financial Planning Director, wrote a broader piece around planning for retirement, which can be accessed here.
6. Passing on wealth
The number of deaths that resulted in an IHT charge were up by 4% in the 2019 to 2020 tax year. IHT receipts received by Her Majesty’s Revenue & Customs also soared during the 2021 to 2022 tax year, rising by £729m to £6.1bn. This increase marked the largest single-year rise in IHT receipts since the 2015 to 2016 financial year4.
Why am I highlighting this? Well, the answer’s simple; no one wants to leave their loved ones with a huge tax bill and, given rising property prices, the likelihood of that happening is creeping up. Estate and tax planning isn’t the most straightforward task, and the rules often change. But with careful planning and some financial advice, you can potentially reduce the impact of this hefty 40% tax.
We encourage everyone to keep in mind that pensions and Self Invested Personal Pensions are not generally within the scope of IHT, meaning they can be an extremely powerful tool to ensure you’re not paying more IHT than you need to. It may also be worth considering establishing a family pension pot, that can be passed down through generations and still not be liable for IHT.
Overall, the key is to stay flexible. Everyone’s personal circumstances are different, and it isn’t unusual for them to change suddenly. But when they do, it’s important to consult an agile financial planning partner, who can adapt to help you best meet your needs – particularly for those nearing or already in retirement.
1Source: Money & Pensions Service
2Source: Office for National Statistics
4Source: HM Revenue & Customs
Tax rules are subject to change and taxation will vary depending on individual circumstances. This article does not constitute advice or a recommendation; please consult a financial adviser.