Paul Morgan & Associates Wealth Management Limited - Whyfield Hear it from the Experts Feature

Ensure a safe financial future for yourself, your parents and your children during the coronavirus pandemic.

Members of the sandwich generation, those individuals in their 40s, 50s and 60s who are bringing up their own children while also providing care for their parents, face increased financial strain in the best of times. Pulled in different directions, they are also trying to save for their own retirement during a critical period in their working life.

In the current coronavirus crisis, the sandwich generation is facing additional challenges, with the pandemic impacting jobs, businesses, schools and home life.

It’s the perfect storm of financial, emotional and time pressure. You might be in a senior role at work and have to juggle management responsibilities with the challenge of working from home. Or you might have been furloughed from your current role and face the prospect of a cut in income. Added to this, there are concerns about the performance of your pension and other investments given recent stock market falls.

So, amid this perfect storm, what can members of the sandwich generation do? A financial adviser can help to work out your priorities and put a plan in place to build wealth for the future. In the meantime, here are some tips on how to support your parents and your children – while also taking care of yourself.

How to help your parents

Whether your ageing parents live with you, by themselves or in a care home, this is an anxious time. And while money is never an easy topic to talk about, having a conversation will allow you to plan for this period of uncertainty more effectively.

Do you have a clear understanding of your parents’ assets, income sources, living expenses and debts? Do they have life insurance or long-term care insurance? Are they claiming all the benefits they are entitled to?

Involving a financial adviser at this point can remove emotion from the equation and restrict the discussion to the facts and figures – for example, if you need to adjust your financial plan due to a change in circumstances caused by the coronavirus crisis.

Talk to your parents about financial scams in order to help prevent them from falling victim to online or telephone fraud. Keep in regular contact (via phone or digitally) and make sure they’re aware that you’re happy to discuss any money concerns that they may have.

And though it is a difficult subject, it’s important to check that your parents’ affairs are in order. Will creation and legacy planning will be front of mind for many people during this time of uncertainty, and it’s worth taking a look to make sure everything is up to date. Also, note whether they’ve specified who can legally take control of their finances should they become unable to make decisions on their own.

How to help your children

Whether your children are younger or have returned to school, or older and back at university, or they have been laid off from their job, they will likely need increased emotional – and possibly financial – support.

Thinking about money as a family, rather than each generation trying to manage alone, is a great place to start, and has the added benefit of introducing younger generations to financial planning.

Ask yourself: what are you currently paying for childcare or schooling? Are you saving for a child’s education, or to help with a first-home purchase? Are loans and gifts to your children being structured in the most flexible or tax-efficient way?

The impact of the coronavirus may change the answers to these questions, and a financial adviser can help you identify what to and how to adapt to current circumstances if needed – while still saving for the future.

Pensions and Junior ISAs are great opportunities to give children a financial head start, and it’s worth contributing even in times of volatility. In the Budget in March, the annual allowance for a Junior ISA was more than doubled to £9,000. A parent or guardian must set up the Junior ISA, but anyone can pay into it, and there is no tax to pay on any income or gains. And even small contributions into a child or young person’s pension can make a big difference over the long term.

How to help yourself

Remember, to continue caring for your children and your parents, you need to take care of yourself.

It can be tempting to try to predict the future or react to events as they happen. Talking to a financial adviser can help you make a financial plan in a calm, rational way, rather than reacting to news stories or your own emotions. Putting the right plan in place will allow greater opportunities to build wealth over time – fulfilling your retirement plans while still supporting other generations.

If you can, continue contributing to your own pension and savings. Sacrificing saving today could result in financial strain tomorrow. In addition, life insurance and financial protection are relevant now more than ever – we may not like to think about death, serious illness and long-term sickness, but they’re especially important if others rely on you financially.

Make some time to give your budget a spring clean. Are there monthly costs that you could eliminate or reduce? Are you using available tax breaks? You may even find there is an opportunity to make the most of a fall in share prices and invest for the future. When markets have dropped, it can be a good time to save and invest. It may seem counterintuitive, but you are buying cheap stocks.

Valuable reliefs and allowances can help to create long-term financial security for ourselves and our family.

ISAs

ISAs have become one of the most popular ways to save, principally because they are simple and readily accessible.

The substantial increase in the ISA allowance to £20,000 was a very welcome step in encouraging individuals to invest in their future. However, as interest rates in the UK are lower than ever, money being held in Cash ISAs is failing to achieve the very basic objective of keeping pace with inflation. The result is real losses for savers.

Those who are investing their ISA allowance for the long term – in assets offering the scope for attractive levels of income and capital growth – are giving themselves a better chance of maximising the tax-saving opportunities on offer.

Individuals yet to use their ISA allowance, or with accumulated ISA savings, need to carefully consider their options to ensure that they are maximising this valuable opportunity to generate tax-efficient capital and income for the future.

Pensions

Saving into a pension is an even more attractive prospect than it was a few years ago. This is because there is much greater freedom for taking benefits; pension savings can now be more easily left as part of a tax-free inheritance. However, the advantages extend further than just drawing benefits and passing money on to loved ones: the government still rewards savers by giving them tax relief on their pension contributions.

Subject to certain limitations, for every 80p you contribute to a pension, the government automatically adds 20p in tax relief. Higher earners can claim extra tax relief through their annual tax return, so a £1 pension contribution can effectively cost just 60p.

While tax relief is seen as a means to encourage pension saving, the annual cost to the Exchequer of providing it is around £40 billion2. With the government under increasing pressure to reduce public spending, there’s no guarantee that the higher rates of tax relief will be maintained into the future.

Those wishing to make their retirement plans a reality should consider fully utilising their annual allowance for this tax year to make the most of the tax breaks on offer. Unused allowances can be carried forward, but only from the three previous tax years. This financial year is the final chance for pension savers to use the 2017/18 allowance.

Inheritance Tax

There are few more confusing – or unpopular – taxes than IHT. But continued confusion and inertia means that the Office for Budget Responsibility expects to see a 19% increase in IHT revenues over the next four years3.

However, there are a number of exemptions that allow individuals to reduce future bills. Perhaps the best known is the annual gifting allowance, which gives individuals the opportunity to remove £3,000 of assets from their estate immediately (£6,000 if they use the previous year’s allowance as well).

Taking steps to reduce your taxable estate by topping up a child’s pension or Junior ISA could go a long way to providing them with an invaluable head start in life. The Junior ISA allowance rose from £4,368 to £9,000 on 6 April 2020. Also, make this year’s £3,000 gifting allowance count – and carry forward last year’s, if you haven’t used it already.

It’s a time of the year when individuals and couples are given an opportunity to put their long-term plans back on track by using reliefs and allowances that would otherwise be lost. Nevertheless, this requires some knowledge and expertise. That’s why you should speak with a financial adviser to better understand how you can gain maximum advantage for this year and the years to come.

1 CBOE Volatility Index (‘VIX’), accessed 5 September 2019
2 HM Revenue and Customs, ‘Estimated Costs of Tax Reliefs’, October 2019
3 Office for Budget Responsibility, Economic and fiscal outlook – March 2019

Look after you and yours. If you have any questions or concerns about intergenerational financial planning or reliefs and allowances, just ask a financial adviser. They’re there to help.

To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Paul Morgan and Associates Wealth Management Limited on 01872 263191 or email p.morgan@sjpp.co.uk.

Alternatively, you can find more information on their website.