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:
- 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.
- 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.
- 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.
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.
With summer over, the nights are already starting to draw in and the colder weather is arriving after months of record-breaking temperatures. That doesn’t mean you have to shelve your UK holiday plans until the spring though. Throughout autumn, there is still plenty of places to head without having to step on a plane when you want to enjoy a break.
Whether getting outdoors to take in the stunning autumn views or being cosy inside with a cup of tea is your idea of an excellent autumn break, these five staycation destinations may be just what you’re looking for.
1. Aviemore, Scotland
Scotland is known for its breathtaking scenery and Aviemore is beautiful. Surrounded by mountains and the Cairngorms National Park. If you love to be outdoors, it’s the perfect place to consider for your staycation. You can try your hand at skiing, canoeing and even dog sledding. There are gentler outdoor pursuits to take in, from trails around its stunning national park to wildlife watching.
When the weather turns or you want to head indoors, there are more than enough options for dining, shopping or stopping to have a drink. You can watch, or even take part in, traditional ceilidh dancing too. There’s a chance to step back to the 1700s at the Highland Folk Museum or enjoy a trip on a steam train by taking the Strathspey Railway.
2. Dartmouth, Devon
Dartmouth is situated on the mouth of the River Dart and is one of Devon’s most popular towns thanks to its historic streets and scenic location. As it’s surrounded by countryside, it’s in an excellent location for taking a brisk autumn walk and there are many traditional English pubs to stop at for lunch or dinner to get your energy back too.
Other landmarks to keep an eye out for when you’re exploring Dartmouth include the 14th-century castle, which offers views of the estuary and Baynard’s Cover Fort, which dates back to the 16th century. If you love the picturesque views of the water, why not head out onto the river? The Dartmouth Paddle Steamer is one of the last coal-fired steamers in the UK. Along the way, you’ll be able to take in many iconic Dartmouth landmarks at a leisurely pace too.
3. Whitby, Yorkshire
Why not head to the seaside on your next staycation? Whitby might not offer warm Mediterranean waters this autumn, but it’s got plenty more going for it. Strolls along the coast are guaranteed to offer great views and are even better when you have traditional fish and chips at the end too. The harbour is a great place to end up, the atmospheric Abbey towers, which is said to have inspired Dracula author, Bram Stoker, over the cobbled streets as you walk along the beach.
Not too far from the harbour is a whale bond arch that was erected sometime after 1853, paying homage to the history of Whitby. If you’re lucky, you may even get a chance to see whales in the wild too. In autumn, vast shoals of herring migrate to the Yorkshire coast, attracting a plethora of other animals. Head out on a boat and you could spot seals, whales, dolphins and much more.
4. Stratford-upon-Avon, Warwickshire
Celebrated for being the birthplace of playwright William Shakespeare, you’ll find plenty of history and attractions at Stratford-upon-Avon. The market town is easy to navigate if you want to walk the Shakespeare trail, taking in plenty of sights, including his wife’s Anne Hathaway’s cottage, the family home, which is now a working museum, and his final resting place in the Holy Trinity Church.
Don’t worry though, it’s not all about the famous playwright. Amongst the other things to do at Stratford-upon-Avon include the MAD museum, a butterfly farm and the 18th-century mansion of Compton Verney, which is home to an award-winning gallery and museum, is just a 20-minute car journey away and set in 120 acres of parkland.
5. Cambridge, Cambridgeshire
Cambridge is synonymous with the university in the city, but it isn’t just students that will love visiting here. The stunning building that seems unchanged for centuries makes it the ideal place for an autumn walk as you take in the view. Walking alongside the River Cam, where you can find many college gardens, are Backs as they’re known, is a must. Of course, if you’re visiting Cambridge for the first time, you should go punting on the river too; wrap up warm and relax as a guide navigates.
If you’re a fan of delving into history, a university tour is a great way to explore the nooks and crannies of the world-famous institution. There are several arts venues to take in too, including the Fitzwilliam Museum, as well as plenty of traditional pubs and shops to browse.
House prices and rental yield have risen significantly over the last few decades. So, it’s no surprise that becoming a landlord is often seen as an attractive way to supplement income or create a nest egg for retirement. However, research shows that landlords have to contend with significant costs too.
If you’re thinking of using property to build up your wealth, it’s important that you go ahead with a clear understanding of how much a landlord can expect to pay out as well as the income earned.
According to research from LV= landlords in the UK are spending nearly £4.7 billion a year on their rental properties. On average, each landlord is paying around £3,134, eating significantly into the profits a property is likely to deliver. For many, the cost and time involved in managing their properties has become so great 600,000 (41%) are actively considering selling up.
Changing legislation for landlords
For many landlords, it’s likely legislative changes are having an impact on the decision to consider selling.
Regulatory changes mean that landlords now have far more responsibilities to ensure their properties are well maintained. This includes making sure all gas and electrical equipment are safely installed and maintained, providing an Energy Performance Certificate and testing smoke and carbon monoxide alarms, adding to the cost of letting a house.
What’s more, tax perks have been reduced. Since 2017/18 a new Buy to Let tax system has been phased in. Prior to this, you could deduct your mortgage interest payments from the rental income, meaning you paid less tax. However, the payments qualifying for this deduction have decreased by 25% a year. From April 2020, you won’t be able to deduct any mortgage interest payments from rental income. This may mean landlords have moved into a higher tax bracket and some could even be left with negative earnings.
On top of this, political and economic uncertainty may play a role in some landlords deciding to exit the market.
Meera Chindooroy, Policy and Public Affairs Manager at the National Landlords Association, says: “Over recent years, landlords have faced a raft of haphazardly introduced new regulations which, compounded by tax changes, have increased the cost of letting. We have not seen any signs yet that the government intends to pursue a more strategic approach to help landlord’s future-proof themselves.”
7 landlord costs to keep in mind
If you’re thinking about investing in rental properties, getting an idea of how much it’ll cost you is essential for seeing if it’s a realistic option for you.
1. General maintenance
The research identified the cost of general maintenance as one of the largest outgoings. Average annual costs were:
- £370 for renovations and refurbishments
- £370 to repair or replace boilers
- £313 fixing structural damage
- £265 on decorating
- £203 for garden maintenance
Whilst some of these costs will be from general wear and tear, others will be the result of damage caused by tenants. Due to the actions of their tenants, landlords indicated that walls, white goods and doors were most likely to be damaged.
2. Complying with regulations
In addition to general maintenance, there are regulatory costs to consider. Whilst these are often small, they are worth keeping in mind. An Energy Performance Certificate is a legal requirement that will set you back £65 every ten years. A Gas Safety Certificate must be done every year, which will cost around £80 annually assuming everything is in working order.
As mentioned above, from April 2020 you won’t be able to offset interest in mortgage repayments against tax to be paid. If your income from property rental exceeds £1,000 annually, you must inform HM Revenue and Customs (HMRC) and you may need to pay Income Tax on the earnings. Whilst you won’t be able to offset mortgage repayments against tax soon, you may be able to deduct other allowable expenses, including letting agent’s fees, maintenance and repairs to the property, and ground rent.
4. Agent fees
Whether you use an agent to let your property or not is a personal choice. It does come with some benefits, such as the agency finding you a tenant and dealing with complaints, if you want a hands-off approach. However, this does come with a cost. You may have to pay an additional setup and administration fee when using an agency, as well as a percentage of the monthly rent, often around 10-15%. Be sure to read any terms and conditions carefully before selecting an agency to work with if you decide to go down this route.
5. Void periods
You should account for the period when no one is living in your property, known as void periods. You will still have to meet your mortgage repayments and may face other costs even though it’s not generating an income. Some void periods are unavoidable, but there are things you can do to minimise them such as ensuring you’ve researched the types of properties that are popular in the area and establishing good relationships with tenants.
6. Landlord insurance
Whilst most landlords have a good relationship with tenants, this, unfortunately, isn’t always the case. According to the research, a third of landlords admit that bad tenants are the most challenging part of letting a property. Almost half (46%) have experienced a tenant dispute, whilst 23% say it’s something they have to deal with at least once a year. The reason for disputes varies and include delayed rent and damage to the property. Landlord insurance can offer you some protection and peace of mind.
7. Mortgage repayments
Finally, you will, of course, need to make mortgage repayments. Most Buy to Let mortgages are interest only and, as a result of low-interest rates, will be relatively low. However, it’s important to consider how affordable these are. As you’ll likely only be paying the interest on a mortgage, you won’t own the property at the end of the term. You’ll either need to remortgage, sell the property or make provision to repay the loan.
When do you want to retire? Are you dreaming of giving up work before you start collecting your State Pension? With news that the State Pension age is rising and suggestions the government needs to raise it quicker, it’s a question more workers may be thinking about.
With 15th September marking Pension Awareness Day, now is the perfect time to consider whether your pension contributions are aligned with your plans. The sooner you start planning retirement, the more likely you’ll be able to make dreams a reality.
Changes to the State Pension age
Recently, the State Pension age for men and women equalised at the age of 65. However, further rises are planned and the State Pension age remains under review. By 2028, the State Pension age will be 67 and it’s likely to rise beyond this. It’s important to understand when you’ll receive the State Pension and to keep track of how legislative change will have an impact. You can check your State Pension here.
Whilst there are already steps in place to increase the State Pension, you may have seen recent news suggesting that it needs to increase at a much faster pace.
According to think tank the Centre for Social Justice the State Pension age should reach 70 by 2028 and 75 by 2035. The organisation argues getting more people in their 50s and 60s to continue working could boost the economy by £182 billion. It also notes the cost of providing the State Pension, which accounted for 42% of all welfare spending last year, a bill that is rising. Over the last 30 years, the cost of the State Pension has increased by over £75 billion, reaching £92 billion.
If you’d hoped to retire sooner, the State Pension age increasing could derail plans. The Centre for Social Justice paper is simply a suggestion, but you may not want to work up to the point the State Pension age is currently set.
3 steps to calculating if you can retire before receiving the State Pension
So, how can you retire before State Pension age? It’s a goal that requires careful financial planning. Fortunately, if this is your target, Pension Freedoms mean than you’re likely to have more options that you would in the past. Most people are now able to access their pensions from the age of 55, well before they can expect to start receiving an income from the State Pension.
However, simply being able to access pensions earlier in life doesn’t mean you can afford to retire sooner. Your pension provisions are likely to need to provide an income for the rest of your life. Making withdrawals sooner could leave you in a financially vulnerable position in your latter years.
You’ll need to take three essential steps to begin understanding if it’s possible to retire on your current provisions before you’ll receive the State Pension and how to make up a potential shortfall.
1. Set out your goals
Calculating if you can afford to retire before the State Pension age means you first need to set out what you hope to achieve. There are two key questions here; when do you want to retire? What will your lifestyle and spending look like in retirement? Understanding how much income you’ll need annually and your life expectancy are crucial to assessing how your savings stack up.
2. Understand your current pension savings
With an idea of how much you’ll need to retire sooner, you’ll need to look at how much you already have in your pensions. Remember to assess all the pensions you hold and factor in likely investment returns between now and your intended retirement date. With these figures, you’ll be able to see the level of income your pension will provide if you retire at different points.
3. Assess how other assets may be used
Pensions are often the key to creating an income in retirement, but they’re not the only option. You may have other assets that can be used to fund retirement, such as savings, investments or property. How could these be used to supplement pensions? Knowing you have other assets to fall back on can give you the confidence needed to move ahead with plans. You also need to ask whether you’d be comfortable using other assets for retirement income. Perhaps you’d hoped to leave property as an inheritance or savings to pay for potential care costs.
Identifying a shortfall
As you assess your pension savings, you may find that you’re in a better position than you thought. However, you could also find a gap between your ambitions and savings. If this is the case, identifying the shortfall is the first step to creating a financial plan that combines your aspirations and financial situation. This is where financial planning can help you understand what steps may help.
- Could you work longer than initially planned and still retire before receiving the State Pension?
- Would a phased approach to retirement appeal to you?
- Could you reduce your monthly outgoings or cut back on big-ticket spending?
If you hope to retire before reaching State Pension age and would like to understand the impact this will have on your financial security, please get in touch.
Please note: 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.
When you think of financial risk, it’s probably potential investment losses that come to mind. But not taking enough risk with your wealth can be just as damaging financially.
News that UBS, the world’s largest wealth manager, will introduce a penalty for clients that hold a large portion of their assets in cash accounts gives the perfect opportunity to look at whether you’re taking enough investment risk.
From November, wealthy clients of UBS will face an additional annual fee of 0.6% on cash savings of more than €500,000 (£458,000). The penalty rises to 0.75% for those with savings that exceed two million Swiss francs (£1.7 million). The minimum fee is €3,000 (£2,746) a year. A UBS client holding two million Swiss francs in cash would face an additional annual charge of 15,000 francs (£12,624).
The negative interest rates set by the Swiss National Bank and the European Central Bank are behind the decision for the new penalty. Negative interest rates mean cash deposits incur a charge for using an account, rather than receiving interest.
Whilst the UK does not have negative interest rates, they have remained low since the 2008 financial crisis. The Bank of England base rate is just 0.75% and has been below the 1% mark for the last decade. As a result, it’s likely your cash savings are generating lower returns than they may have in the past.
Why cash isn’t always king
You’ve probably heard the phrase ‘cash is king’ but this isn’t always the case.
Cash is often viewed as a safe haven for your money. After all, it won’t be exposed to investment risk and under the Financial Services Compensation Scheme (FSCS) up to £85,000 is protected per person per authorised bank or building society. If you’re worried about the value of your assets falling, cash can seem like the best option.
However, that’s a view that fails to consider one important factor: inflation.
The rising cost of living means that your cash effectively falls in value in real terms over time. In the past, you may have been able to use cash accounts to keep pace with inflation. But low-interest rates mean that’s now unlikely. Over time, this means the value of your savings is slowly eroded.
At first glance, the annual inflation rate can seem like it will have little impact on your savings. But, over the long term, the effect can be significant. Let’s say you had a lump sum of £10,000 in 1988. To achieve the same spending power 30 years later you’d need £26,122. If you’d simply left that initial lump sum in a cash account generating little interest, it’ll be worth less today.
Of course, that’s not to say there isn’t a place for cash accounts in your financial plan. For an easily accessible emergency fund, a cash account may be the best home for your savings, for example. Yet, in some cases, taking the right level of investment risk is essential for not only growing but maintaining wealth.
How much investment risk should you be taking?
Whilst holding your wealth in cash is potentially harming the outlook of your financial plan, you may be wondering how much investment risk you should be taking.
Unfortunately, it’s not a question we can answer here. It’s a decision that’s personal and should be made taking your circumstances and aspirations into account. For some people, investing in relatively low-risk investments that aim to match inflation will be the right path. For others, taking greater risk will be considered worth it when the potential for higher returns is considered.
When deciding how much risk your investment portfolio should take, areas to think about include:
- The reason you’re investing
- How long you’ll remain invested for
- Other assets you have and the risk profile of these
- Your capacity for loss
- Where investing fits into your wider financial plan
- Your overall attitude to risk
Understanding the level of investment risk that’s right for you and the portion of your wealth that should be invested can be challenging. This is where we, as financial planners, can help you. We aim to work with you to create a financial plan that puts your short, medium and long-term goals at the centre of decisions. If you’re unsure if you’re taking enough, or indeed too much, risk financially, please get in touch.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.