Patrick Connolly, Chartered Financial Planner at Chase de Vere, comments on 10 financial facts which people may be unaware of, and what they can do about it.
Many people don’t know what State pension they’ll receive and when they will get it.
You can request a State Pension statement from www.gov.uk/check-state-pension or by calling the Future Pension Centre on 0800 731 0175. This will tell you how much you might get, when you could get it and if there is any way that you can increase it.
If you don’t have a will, when you die the rules of intestacy will apply
You need to have valid will. If not your assets will be distributed according to set rules and won’t be left to whom you want. It could be that, for example, if you have a long-term partner, but you’re not married or in a civil partnership, they could be left with nothing.
You must then ensure your will is reviewed if your circumstances change. Your will is automatically revoked if you get married, revoked in part if you get divorced and you are likely to want to make changes anyway if you have children or if you simply change your mind about who you want to leave your assets to.
Children can take control of their Junior ISA at age 16 and can access the money and do what they want with it at age 18
There is nothing you can do to stop this. So, you must make sure that you educate your children about money, so they are more likely to make sensible decisions. If you are concerned that they’ll make the wrong choices, then be careful about saving too much into a Junior ISA.
The rates payable on cash ISAs are often lower than on standard savings accounts
With savings rates remaining low, it is important to shop around for the best deals. Cash ISAs should be considered as any interest is tax free, but by using the Personal Savings Allowance basic rate taxpayers can earn £1,000 of interest each year, and higher rate tax taxpayers can earn £500, before any savings income is liable to tax. Savers should therefore consider all of the options and select the accounts which give the best after-tax returns now, and in the future, and are protected by the Financial Services Compensation Scheme (FSCS).
Younger people won’t be able to access their pensions at age 55
Pension freedoms have meant that more people are accessing their pensions from age 55. However, this minimum age at which pensions can be accessed will increase so that it remains 10 years lower than the State pension. This increase in the minimum pension age takes effect when the State pension age rises to 67 on 6 April 2028, so, those born after 5 April 1977 won’t be able to access their pension until at least age 57. When looking at your retirement planning it is important to understand when you’ll be able to access your pensions.
Not all savings accounts are protected by the Financial Services Compensation Scheme (FSCS)
Savers are generally safe in the knowledge that if something goes wrong with their bank or building society, they will be protected by the FSCS. However, they need to be wary of having more than £85,000 with the same company or group of companies or saving with organisations which aren’t UK regulated, otherwise their savings may not be protected. Also, while peer-to-peer lending can offer attractive interest rates, these investments are not covered by the FSCS and so people must tread carefully.
Over 50s life assurance plans are often poor value
You often see celebrities advertising these products, highlighting that anybody aged over 50 can apply and they won’t need to provide medical evidence. However, all this means is that everybody of a certain age is grouped together and there is a general assumption that they are quite unhealthy. This means that healthy people pay over-the-odds for their life cover and, to stop the unhealthiest people benefiting, the policies don’t pay out unless you have already paid in premiums for a year, or even two years.
If you are in good health, then look at mainstream life assurance polices where you do provide medical evidence; it is likely that you’ll get much better terms. Alternatively, instead of putting money into an over 50s plan, save into a savings or investment account and build up a cash lump sum over time.
Gold isn’t a safe haven
Often perceived as a safe haven, gold price fluctuations have nevertheless been volatile over many decades with investors potentially making or losing large amounts of money over some relatively short timescales. The price of gold reached over $1,800 in 2011 yet fell to around $1,100 at the beginning of 2016 and currently stands at around $1,200. This is very volatile performance for a supposedly safe asset class. These sharp fluctuations in the price of gold are nothing new. Gold typically has periods where it rises or falls rapidly, in between longer periods when it does very little. If you’re investing in gold don’t assume that your money will be safe.
Workplace pension funds may be the wrong choice for you
Most people who are saving into a workplace pension are placed into a ‘default’ fund and, for many, this is a reasonable choice. However, as you get older it could be a very bad option. These funds either assume that you’ll buy an annuity and so sell shares and become very low risk as you get older, or assume that you’ll go into drawdown and so retain shares in your fund. If the wrong assumption is made it could mean that you suffer from poor investment returns or your fund falls heavily just before you buy an annuity
A default fund may be fine for you when you are younger, but as you get older you need to make sure that your investments are suitable for you depending on your circumstances and how you want to access your pension.
Most larger financial advice firms don’t give independent financial advice
Most of the larger and better-known financial advice companies don’t provide independent financial advice. Firms may choose to give ‘restricted’ advice because it means they can sell their own products, platforms and investment funds even if they’re not the best ones on the open market. An independent financial adviser however can recommend their pick of all retail investment products and funds from across the market.
If you’re using a financial adviser, make sure you know whether they give independent or restricted advice and, if they give restricted advice, that you understand how this status might influence the recommendations you receive.