What to do if you have multiple small pension pots

What to do if you have multiple small pension pots

Throughout your career, you’ve probably contributed to a few pensions. It can be easy to lose track of them, so you may have considered consolidating them into one larger pension instead.

Indeed, research from the Pension Policy Institute shows that there are eight million deferred Workplace Pensions with values under £1,000. You could be neglecting to factor these savings into your retirement plan and continuing to pay administration fees that may entirely negate any investment returns.

If you have many small pension pots, now is a good time to make sure you don’t lose track of your previous contributions and think about the pros and cons of consolidating your small pension pots into one scheme.

Account for all your pensions

If you’ve had several jobs you could have multiple small pension pots.

In particular, you may have many Workplace Pensions. Since 2012, the government has required employers to automatically enrol the majority of employees into a Workplace Pension scheme. However, Financial Planning Today reports that 19% of UK workers are unaware of this.

Your first step is to make sure you don’t lose some of your contributions. Locate all the pensions you have paid into. To start tracking down ‘lost’ pensions, check any correspondence sent to you by your pension providers or old employers.

If you need help tracking down your pension pots, you can use the government’s free Pension Tracing Service. It will search a database of more than 200,000 Workplace and Personal Pensions to find the contact details for any schemes you may be a member of.

Should you consolidate your pensions?

If you do have multiple pensions, you may want to consolidate them. This will mean your retirement savings are held in one place, making it easier to manage. However, in some cases, it’s worth keeping pensions separate.

Answering these five questions can help you understand if you should make any changes.

1. What type of pensions do you have?

The kind of pension scheme you have affects income security in retirement.

A Defined Benefit pension provides a guaranteed income for life, often linked to inflation, which can provide financial security. As a result, leaving a Defined Benefit pension scheme is unlikely to be in your best interests.

In contrast, Defined Contribution pensions give you a final pension value based on how much you have paid into them and investment performance. Consolidating Defined Contribution pensions could reduce administration costs and make it easier to manage your retirement savings.

2. Do any of your pensions have additional benefits?

Some pensions offer additional benefits to their members. These may include a pension for your spouse or children, letting you take out larger lump sums tax-efficiently, or earlier access to benefits. It can be worth holding on to a small pension for continued access to these.

3. What is the long-term performance of your pensions?

If you choose to consolidate, think about where to put your money. Start by finding out how the money in your pension pots is invested. Assessing long-term investment performance can help you maximise pension savings through consolidation.

4. What administration fees do you pay, and what would be the cost of transferring?

Pension providers may take management fees as regular flat payments or a low percentage of your pension’s value. This means that administration fees for a particularly small pot could entirely negate its growth. Compare the long-term costs of paying administration fees on multiple small pensions against the cost of a larger pension and you’ll likely find you save money that can be put towards your retirement.

5. How and when can you access your pensions?

It’s worth thinking about how and when you’d like to access your pensions too. Some small pensions may come with tax benefits when you make withdrawals, and these may be useful to you. If you’d like to discuss the tax implications of consolidating pensions, please get in touch.

Whether pension consolidation is right for you will depend on your pensions and goals. If a low-value pot has no features of use to you, think about consolidating it to make it easier to manage retirement savings. Conversely, even a small pot with benefits you want may be worth holding on to.

Get in touch

Planning for retirement can be challenging, especially when your savings are spread across multiple pensions. If you’d like help understanding what the best course of action is, including whether to consolidate, 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.

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.

What happens if you don’t have a Power of Attorney in place?

What happens if you don’t have a Power of Attorney in place?

A Power of Attorney is just as an important part of estate planning as writing a will. Yet, it’s something that many people overlook, potentially leading to challenges for their loved ones and placing themselves in a vulnerable position.

Power of Attorney gives someone you trust the ability to make decisions on your behalf, if you don’t have the mental capacity to do so. This may be temporary, for instance, following an accident, or permanent, due to an ongoing illness.

It’s often overlooked because we think it’ll never happen to us. However, it’s estimated that there are 850,000 people with dementia in the UK, with the figure projected to rise to 1.6 million by 2040, and this is just one example of an illness that can affect mental capacity. There are many other examples of where an individual cannot make decisions entirely on their own. Having a Power of Attorney in place can ensure someone can make decisions for you.

One important thing to note is that a spouse or civil partner doesn’t have the automatic right to make decisions on your behalf. A Power of Attorney is still required.

There are two types of Power of Attorney. The first covers health and welfare, allowing a trusted person to make decisions about medication, life-sustaining treatment and your day-to-day routine. The second covers property and financial affairs and may include collecting pension benefits, paying bills or deciding to sell your home.

Thinking about handing over the ability to make potentially life-changing decisions to someone else, even those you trust, can be daunting. But the alternative is often far more complex, time-consuming and costly.

Applying to the Court of Protection

If you lose the capacity to make your own decisions and don’t have a valid Power of Attorney, the application goes to the Court of Protection. The court can:

  • Decide whether you have the mental capacity to make a decision
  • Make an order relating to health and care or property and financial decisions if someone lacks mental capacity
  • Appoint a deputy to make decisions on behalf of someone who lacks mental capacity

A deputy is a similar role to that of attorney, including the principle that they must make decisions based on your best interests. The ability of the Court of Protection is a useful safety net but it’s not one that should replace naming a Power of Attorney for three key reasons:

  1. The decision may not align with your wishes: The person appointed as deputy may not be your preference. Using a Power of Attorney means you’re in control of who will be making decisions on your behalf. This gives you a chance to discuss what you’d want to happen.
  2. Initial and ongoing costs will usually be more: To apply to become a deputy through the Court of Protection costs an initial fee of £365, with a further £485 needed if the court schedules a hearing. On top of this, a security bond may have to be set up if someone is appointed a property and financial affairs deputy and an annual supervision fee will be due. The cost of this will depend on the size of your estate. In contrast, it costs £164 to register both types of Power of Attorney.
  3. It takes time to arrange: Once an application has been made, the Court of Protection aims to issue an order within four to six months. During this time, you may be left in a vulnerable position, with loved ones unable to make a decision on your behalf.
Putting a Power of Attorney in place

The good news is that more people are naming a Power of Attorney. Between January and March 2020, the number of applications was up 5% compared to the same quarter last year. This is partly attributed to the government taking steps to make the process easier and faster.

You can access the online service to create a Power of Attorney here. Remember, you will need to register your Power of Attorney with the Office of the Public Guardian for it to be valid, this can take between eight and ten weeks.

As you name a Power of Attorney, it’s worth reviewing your wider estate plans too. It can help you have an open conversation with the person you trust about what your preferences are and how your wealth may change over time. Please get in touch with us if you have any concerns or questions.

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 planning.

3 financial lessons to teach young adults before they go to university

3 financial lessons to teach young adults before they go to university

Young adults planning to head to university this year have faced more challenges than usual thanks to Covid-19. Yet, come September, thousands will still be heading to university and, for some, that will mean independence for the first time.

Questions remain over how universities will tackle social distancing restrictions when it comes to lectures, seminars and accessing resources like the library. However, if your child or grandchild is moving away from home to attend university, they’ll need to take control of their finances no matter how courses are structured. If they haven’t had to pay things like rent or manage day-to-day outgoings before, it can be a steep learning curve.

It’s not surprising that taking control of finances can be a daunting prospect. In fact, 79% of students worry about making ends meet. In line with this, 77% stated they wish they’d had a better financial education before starting university. Luckily, there are some things you can teach them to help them manage their finances better as they strike out on their own.

1. How to create a budget

First, is how to put together a budget and why it’s important.

For many first-year students, university life will be the first time they have to handle bills and all their day-to-day expenses. A budget can help keep them on track. It’s particularly important because of how student loans and grants are paid. Students will receive a lump sum at the start of each term, as a result, the money needs to last several months before the next instalment arrives.

Suddenly having a large amount in your account, certainly makes it tempting to splash the cash. However, it’s a step that could leave them short for the rest of the term. Going through what they’ll need to pay for each week or month can help manage how their income is spent, there may be some expenses they hadn’t previously considered too. Taking out one-off costs and committed spending can help create a weekly disposable income that they can enjoy.

The good news is that student accommodation is often paid termly too and includes bills, so you don’t have to worry about them missing rent payments.

2. How overdrafts work

Student overdrafts are incredibly popular. These are typically interest-free while the student is still in education. Often the limit will increase each term or academic year. For instance, starting at £1,000 and reaching £3,000 in their third year. Some accounts will come with additional freebies that can be valuable, such as a free railcard.

An overdraft can be a useful way to manage finances throughout university. However, research from the Money Advice Service suggests it’s still an area where students could benefit from some guidance. Four in ten admitted they had gone over their overdraft limit or used an authorised overdraft, potentially leaving them facing hefty penalties.

With an overdraft, it can be easy to see the funds available as free money, rather than a source to fall back on occasionally. Managing an overdraft effectively goes back to budgeting.

It’s also important to look ahead to after they graduate, and interest starts being added to the overdraft. Keeping in mind that it will need to be paid back at some point can help students rein in their spending on non-essential items.

Some banks will offer an extended 0% interest period, where the overdraft limit will gradually reduce, helping new graduates slowly pay back what they owe. When opening a student account, it’s worth seeing if this is offered and what the eventual interest rate could be as a result.

3. What to consider before using a credit card

In addition to overdrafts, students may find they’re offered a credit card for the first time too.

The good news is that not many students would turn to a credit card if they needed money. However, for the 14% that would, it’s important they understand how a credit card works and the potential negative effects to consider. Forgetting to make a payment or spending more than they can afford to pay back could leave them struggling financially for years to come.

The Money Advice Service research found that in 2018, 176,000 students had fallen back on, or missed payments on bills or credit cards for three months or more. It’s a mistake that could harm their credit rating, making securing loans, a mortgage, or other forms of credit far harder in the future.

Having an honest conversation about credit card interest rates and what a credit score means for their future, can help students understand why alternatives may be a better solution for them. Of course, there are times when a credit card is useful, but having a plan to pay it back is essential too.

Supporting students through university

There are plenty more financial lessons to pass on to young adults before they head to university and after they graduate. Making it clear you’re there to talk about financial concerns they may have and offer advice when they need it, can help create a positive attitude towards their finances.

Completing a degree can be expensive and you may want to offer financial support to your child along the way. Whether you hope to provide regular financial support or cover one-off costs, we’re here to help. From understanding what’s affordable to which assets are most appropriate to use, please contact us to discuss how you can help children or grandchildren as they head off to university.

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

Covid-19 spurs over-60s to consider later-life care

Covid-19 spurs over-60s to consider later-life care

The Covid-19 pandemic has meant we’ve evaluated many areas of our lives and priorities. One area that’s now being reconsidered by the over-60s is their later life care plan.

Research suggests that the challenges and restrictions care homes faced during lockdown mean people are keen to explore the alternatives. With many care home residents being vulnerable to illness and the proximity to others, they faced higher infection rates. This sadly led to death and serious illness in some cases, with loved ones unable to visit to offer comfort.

On top of this, care homes stopped permitting visitors, in line with social distancing guidelines, which had an impact on the quality of life and relationships for residents.

As a result, it’s not surprising that one million over-60s that had originally planned to go into care homes later in life if needed, are now rethinking their plans due to growing concerns from family members. Nearly a fifth (19%) of Brits who would have previously been open to care homes as an option for family members, now wouldn’t consider it.

What are the alternative options?

Moving into an assisted living facility, which offers more independence than a care home, or moving to a more manageable property are two of the most popular options. Around a fifth of Brits would choose each of these as their primary option. Others plan to rely on family for the additional support they may need later in life. One in ten would consider moving into a spare room at a loved one’s home while 6% would opt for a granny annexe.

Whether staying in their own home or moving in with family, respondents recognised the need for adaptation. Two thirds (67%) believe they need to alter properties in some way. The most popular home improvements include:

  • Making modifications to the bathroom (34%)
  • Installing an emergency alarm (27%)
  • Installing a chair lift (22%)
  • Buying new furniture, such as a bed with rails (22%)
  • Installing mobility features like ramps (19%)

The number of people recognising the need for such modifications shows over-60s aren’t shying away from the fact that more support may be needed in their later years. However, there is one important factor that many have failed to overlook, and that’s the associated costs.

Planning for the cost of later-life care

Worryingly, 55% of over-60s haven’t considered how they would fund later-life care or necessary adaptations. What’s more, a fifth (21%) expect to use their State Pension to cover these costs, but at £175.20 per week (£9,110.40 annually), it’s unlikely to stretch very far.

If you moved into a care home, you could expect significant outgoings. In 2019, the average cost of a residential care home was £33,852 per year, rising to £47,320 if nursing care was included.

Alternative options may be cheaper, but the costs still add up. An assisted living facility will come with ongoing charges for the care provided. If you were to remain in your home but required the support of a carer for two hours a day, you can expect to pay around £20 per hour. That may not seem like much but adds up to £14,560 per year.

Even if you remain in your home and don’t require additional support, necessary adaptations can take a sizeable chunk out of your savings or income. In England, council support may be available if adaptations cost less than £1,000 if it’s been deemed necessary. Further support is typically means-tested, so the costs could fall to you.

Despite the sums of money associated with later-life planning, the financial aspect remains overlooked. But it should be part of your wider financial plan.

As you think about what type of support you’d prefer later in life, it’s worth reviewing your finances and overall goals. Financial planning can help you understand how your assets can be used to provide you with security for the rest of your life, including where some form of care is needed.

It’s a process that can also create a safety net for when obstacles derail your plans. You may intend to move in with a family member but circumstances outside of your control mean it’s not an option when the time comes. With a financial plan that’s considered this in place, you can rest assured that other options are still available. It can also help you understand how the potential cost of care could affect other priorities, such as the income you take during early retirement or the legacy you leave behind for loved ones.

If you’d like to discuss your plans for funding later-life care, please get in touch. We’re here to help you create a blueprint that considers your wishes and give you peace of mind.

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

5 steps that allow you to handle a financial crisis

5 steps that allow you to handle a financial crisis

Even with careful financial planning, shocks can happen. Often financial crises are unexpected and out of our control, so it’s important to have a safety net to fall back on. However, research suggests that most people don’t feel confident in their ability to overcome a financial crisis.

Whether it’s unexpected property maintenance or redundancy, it’s essential that you feel confident in your financial situation. Research from Aegon indicates this isn’t the case for millions of Brits though. It found just three in ten men and two in ten women are confident they could financially handle a major unexpected expense. Money worries emphasised this lack of confidence too. 76% of women and 72% of men admitted they worry about money.

If that sounds familiar, here are five steps you can take.

1. Keep track of your spending

It’s easy to lose track of where our money is going. But it’s a sure-fire way to miss opportunities that could save you money.

Keeping tabs on a household budget can highlight were direct debits, such as utility bills or phone contracts, have crept up. A regular review will help you find the best deals and reduce essential living costs. It can also highlight where discretionary spending is adding up. Small expenses often go unnoticed when you look at the bigger picture, but they can have an impact. If you’re worried about money because you feel you’re not saving enough, for instance, cutting back here can help.

2. Reduce high-interest debt

If you have existing high-interest debt, such as credit cards or loans, you should prioritise repaying these.

Interest rates on savings are at a historic low. As a result, money in your savings accounts is likely to be offering significantly less interest than the amount you’re paying to service the debt. Reducing debt first can mean your outgoings are eventually reduced, allowing you to divert more to savings in the future.

Not only does it make financial sense to pay off debt, but it can be a weight off your mind. People often find their financial wellbeing and their confidence improves when they are debt-free.

3. Build up a rainy-day fund

Having a financial safety net to fall back on can deliver more confidence too. It’s recommended that you keep three to six months’ expenses in an easy access savings account. This gives you a financial buffer should something happen.

It can seem like a large target if you’re starting from scratch. But you should make it part of your budget, transferring a set amount each month. As it gradually grows, you’ll hopefully start to feel more confident in your financial security.

4. Consider your long-term financial plan

Often when we worry about money, it’s the short term we focus on. However, looking ahead to the medium and long term is also important and can be a source of anxiety. Once you feel more confident in your current finances, turning your attention to goals further down the line is the next step.

This may include adding more to your pension, building up an investment portfolio or creating a nest egg for children or grandchildren. Knowing you’ve taken action to meet long-term aspirations can provide a confidence boost and help you feel more in control of your finances.

5. Seek financial advice

The research suggests employees would like additional financial support. 69% of women and 65% of men would find face-to-face financial advice useful, as it allows them to address specific concerns. Even if your workplace doesn’t offer these types of benefits, it is possible to get the type of support you could benefit from.

Some services can offer guidance on a range of financial wellbeing issues, from debt management to your options at retirement. Seeking financial advice can also help you create a holistic financial plan that addresses your concerns, goals and long-term ambitions. It’s a process that can give you confidence in your ability to weather the unexpected, including financial shocks. To discuss your needs, please get in touch.

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