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ISSUE 3 - 2017
www.successiongroup.co.uk
OUR CHILDREN’S FUTURE... IN OUR HANDS?In this issue of Succession News, we look at our children’s future from a savings, inheritance, property and pensions point of view.
FUNDING YOUR CHILD’S EDUCATION
SAVING FOR CHILDREN
CHILDREN AND THEIR RETIREMENT PLANNING
COMMERCIAL PROPERTY
Succession NEW
SQUARTERLY NEWS BULLETIN
Editorial Team
Design & Print: citrusmedia
Succession News Magazine is designed and published by Succession Group Limited. No part of this publication may be reproduced without the permission of the publishers.
This magazine has been written for information purposes only and does not constitute advice or a personal recommendation. It does not take into account the particular investment objectives, financial situations or needs of individuals. The information and opinions expressed in the articles are those of the relevant authors and based on information which they believe to be reliable. They do not represent that they are accurate or complete and they should not be relied on as such. Any information is given in good faith but is subject to change without notice.
This publication contains links to websites owned and operated by third parties. Succession Group cannot and has not reviewed all pages of the sites linked to this publication and therefore cannot be liable for their content. No liability whatsoever is accepted by Succession Group Ltd.
FP:2017-297
IN THIS ISSUE...
Succession NEWS 3
LET THE WEALTH
YOU CREATE TODAY
PROVIDE FOR YOUR
FAMILY’S
TOMORROW
Investingfor futuregenerations
At Triple Point we know that when investing for the next generation, you need a solution that not only preserves the value of your funds through Business Relief, but ensures the continued growth of your capital.
Your capital is at risk. There is no guarantee that target returns will be achieved andinvestors may get back less than they invested. Tax rules and reliefs are subject to change.
Triple Point is the trading name for the Triple Point Group which includes the following companies and associatedentities: Triple Point Investment Management LLP registered in England & Wales no. OC321250, authorised andregulated by the Financial Conduct Authority no. 456597, Triple Point Administration LLP registered in England& Wales no. OC391352 and authorised and regulated by the Financial Conduct Authority no. 618187, and TPNominees Limited registered in England & Wales no. 07839571, all of 18 St. Swithin’s Lane, London, EC4N 8AD.
At Triple Point we know that when investing for the next generation, you need a solution that not only preserves the value of your funds through Business Relief, but ensures the continued growth of your capital.
Contact your Succession Wealth Planner to find out more.
Triple Point Estate Planning Service
The Triple Point Estate Planning Service is a clear and straightforward investment solution that aims to achieve 100% relief from inheritance tax after two years without surrendering control or access to your capital.
www.triplepoint.co.uk
Keeping it in the family Succession Group 5
Saving for children Vanguard 6
Essentials in financially educating the kids Seven IM 9
Commercial property: building foundations for the future Janus Henderson Investors 9
Funding your children’s education Succession Group 10
Banking on Mum and Dad Succession Group 12
‘Mum, Dad, I’m getting married’ Succession Group 14
Keeping your family safe Succession Group 16
Children and their retirement planning...surely some mistake! LGT Vestra 19
Why it’s a good idea to start saving for your child’s retirement now Succession Group 20
All the paperwork you need Succession Group 22
Tis better to give Succession Group 24
help to calculate the impact of the residence nil-rate band on your estate Octopus Investments 26
Are pension contributions good for IHT planning? Prudential 27
Succession NEWS 5
KEEPING IT IN THE FAMILY As families are increasingly blended, Succession News explores how you can preserve wealth for your direct descendants?The blended family is now the norm rather than the
exception in fact they now account for 10% of families in
the UK * (1.). Families often come with step-children, ex-
wives, second husbands and while wicked step mothers are
usually the stuff of fairy tales, there may be circumstances
where you would rather share your wealth only with your
blood relatives.
There is a trust that will help you plan your legacy with
greater precision. So-called ‘bloodline’ trusts - also known
as discretionary trusts, family protection trusts or wealth
protection trusts - can protect a family’s wealth and
assets, ensuring that they are not at risk from the divorce or
bankruptcy of family members. In a bloodline trust, the money
can only be accessed by your children, grandchildren or
other direct descendants. It specifically excludes those who
have married into a family.
This can be useful where, for example, your child marries
someone who has children from a previous marriage, or
where you fear a child is on the brink of divorce and you
do not want to see half of your assets go to a soon-to-be-ex
spouse. Your child may have married someone financially
irresponsible and you fear it may end up in the hands of
their creditors. There may also be issues if your own spouse
remarries - you may not want your assets in the hands of a
new partner or their children.
In certain circumstances, this type of trust can also help
protect the estate from the impact of care home fees. If
assets are put into trust, and providing the settlor does
not retain control over those assets, they may not be
taken into account by local authorities when assessing
care fund needs. This is, however, a complex area.
Our specialist Later Life Planning Team would be able to
provide more information.
In other circumstances a ‘discretionary trust’ may be the
right option. In this type of trust, the trustees have discretion
on how to use the trust income, and sometimes the capital.
They decide what gets paid out and to whom. They may
also impose conditions on the beneficiaries. They may be
set up to put assets aside beneficiaries who aren’t currently
capable or responsible of managing their own money. The
settlor sets the guiding principles for the trust, but the trustees
have legal ownership of the assets and the person who
establishes the trust cannot retain control.
The right structure for the trust will depend on how you want
to distribute your wealth. If you have just one beneficiary, an
‘immediate post death interest trust’ may be appropriate.
This may be used in a situation where someone has remarried,
and want their new spouse to have a lifetime interest in their
property or assets, but wants the estate ultimately to revert
to their own children, rather than their spouse’s children,
after they die. This needs to be established in a person’s will,
so requires some forward planning.
Case study
Annabel had run a successful business for many years,
which she eventually sold for £6m. She and her husband
both have children from previous marriages. She had two
adult daughters from her first marriage and he had four boys
from his first marriage. Her husband brought some property
to the marriage, but the majority of their wealth has come
from her business.
Annabel wanted to preserve the wealth from the sale of her
business for her daughters. She wanted to ensure that it did
not go to her husband’s children should she pre-decease
him or to any of her daughters’ spouses or boyfriends. She
also wanted to make sure that her husband could maintain
his lifestyle while he was alive. She established a discretionary
trust. She stated that she wanted her daughters to be able
to withdraw money from the trust at aged 35. Up to that
point, the trustees could make payments for education or
maintenance needs at their discretion. She could also ask
that the trustees made provision for her spouse.
For more information, talk to your Succession Wealth Planner.1. https://www.gov.uk/junior-individual-savings-accounts/overview2. https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/ pensions-and-tax/tax-relief-and-contributions
ETHICAL INVESTINGWe’ve been managing sustainable investments since 2002.Let us help you help your client.
www.ksep.co.ukFor your reference the value of your investments may fall as well as rise and is not guaranteed.
King & Shaxson Capital Limited (FRN: 169760) is authorised and regulated by the Financial Conduct Authority.
Please contact your Succession Wealth planner
K&S_ethical_ad_A5_landscape.indd 1 14/07/2017 15:09
SAVING FOR CHILDRENIf our generation has learnt anything, it is not to assume that the future will be the same as the present. It was hardly 20 years ago that university was free and that the majority of people looked to either their employer or the state for basic pension provision.
Increasingly, individuals are coming to terms with the need
to invest for their own retirement. And university, from being
free is now likely to cost around £60,000, including tuition
fees and living allowance.
Besides university, young people face serious challenges in
financing a home. The average first-time buyer puts down a
deposit of 17% . On the average UK house, costing £290,000,
that means a down-payment just shy of £50,000 .
Of course, everyone’s situation is different. But many of
us face the double challenge of investing for our own
retirement while thinking of ways to help our children at
appropriate times. There are no miracle solutions. We
can, though, make the best of the advantages of time
and regularity.
The one big thing that children have is time. Investing even
small amounts each month, compounded over several
years, might not solve all your problems, but it can make a
significant difference.
Let’s look at an example. Let’s say, at the end of March
2007, you invested £1000 in the Vanguard LifeStrategy 60%
Equity Fund, a simple, low-cost, diversified portfolio of shares
and bonds, which are a type of loan. Let’s say you then
added in £100 a month for the next ten years. At the end,
despite the set-back of the financial crisis, you would have
£21,700 for a total investment of £13,000, including fees.
If you had invested in the LifeStrategy 60% Equity Fund
through a Junior Individual Savings Account (JISA), that extra
return would be tax free. (Of course, it must be remembered
that past performance is not a reliable indicator of
future result).
It doesn’t solve your life problems. It doesn’t even get the
washing-up done. But it is not a bad starter for the challenges
likely to face our children as they grow up.
Ben NightingaleHead of UK strategic accounts1. http://www.which.co.uk/money/mortgages-and-property/guides/mortgage-de posit-explained/how-much-deposit-do-i-need-for-a-mortgage/2. http://www.theguardian.com/business/2016/feb/16/average-uk-house-price- reaches-288000
ESSENTIALS IN FINANCIALLY EDUCATING THE KIDSMost of us believe that our children’s education can be left primarily in the hands of teachers. But there’s one area where we cannot pass on responsibility – financial education. Schools don’t have the resources given it’s not part of the curriculum and their only access to information would be through service providers. Many of us would be uncomfortable giving large brands the ability to ‘sell’ to our offspring so early in life.
So it’s down to us parents. I’ve tried to do the best thing by
my children, aged 9 and 12. They’ve had pocket money
since they could complete chores. They originally received
it fortnightly to help them budget, moving to a monthly basis
when they reach(ed) 10.
When each reaches 13 - an age when they can grasp the
appropriate concepts - I plan to introduce a Junior ISA and
help them select the underlying funds. That allows some five
years of investment experience before they can access
any money. They’ll also hopefully appreciate that money
foregone today is simply transferring happiness to another
time frame!
There are many examples of millionaires who started young.
You may disagree with Jacob Rees-Mogg’s politics, but no
one would baulk at his money. While he came from wealth,
much of his money is actually self-made having set up a firm
with two friends in Hong Kong. He started young: there’s a
picture of him aged 12 reading the Financial Times.
Not everyone needs or wants to become that familiar
with finance. But I would like my kids to understand what
National Insurance Contributions are when they turn 16
and that they’ll pay into a pension when they start work.
Through timely education, I hope to do a half decent ‘job’
as a parent (for once!). Now, if they could also keep me in a
lifestyle to which I’d easily become accustomed… an area
I’m sure that a Succession wealth planner can help…
Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales No. OC378740.
Succession NEWS 9
COMMERCIAL PROPERTY: BUILDING FOUNDATIONS FOR THE FUTUREMost people think of residential property when considering investing in bricks and mortar based assets. An allocation to commercial property, however, may provide an alternative means of receiving regular income for lifestyle planning and future family needs, along with diversification and capital growth potential.
Income, growth potential, and diversificationCommercial property funds, particularly those owning a greater proportion of higher-quality property assets, should appeal to investors on three fronts: they offer a possible good source of income in the form of rents, with the potential for rental growth in locations and sectors that are exhibiting economic strength; they provide the potential for capital gain over the long term should the properties rise in value; and they bring diversification to a portfolio with property historically performing differently to other asset classes.
The value of an investment and the income from it can fall as well as rise and you may not get back the amount
originally invested. Past performance is not a guide to future performance.
Due to the specialist nature of property investment, sometimes, there may be constraints on the redemption or switching of units/shares in the fund(s). The funds invest in a specialist sector that may be less liquid and produce more volatile performance than an investment in other sectors. The value of capital/income will fluctuate as property values and rental income rise and fall. The valuation of property is generally a matter of valuer’s opinion rather than fact. The amount raised when a property is sold may be less than
the valuation.
Nothing in this document is intended/should be construed as advice.
Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Investment Funds Limited (reg. no. 2678531) is incorporated and registered in England and Wales with registered office 201 Bishopsgate, London EC2M 3A and authorised and regulated by the Financial Conduct Authority to provide investment products and services.
© 2017, Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC.
THE OLDER YOU GET,
THE MORE FLEXIBILITY YOU WANT
Investingfor futuregenerations
At Triple Point we know that when investing for the next generation, you need a solution that not only preserves the value of your funds through Business Relief, but ensures the continued growth of your capital.
Your capital is at risk. There is no guarantee that target returns will be achieved andinvestors may get back less than they invested. Tax rules and reliefs are subject to change and withdrawals are subject to liquidity.
Triple Point is the trading name for the Triple Point Group which includes the following companies and associated entities: Triple Point Investment Management LLP registered in England & Wales no. OC321250, authorised and regulated by the Financial Conduct Authority no. 456597, Triple Point Administration LLP registered in England & Wales no. OC391352 and authorised and regulated by the Financial Conduct Authority no. 618187, and TP Nominees Limited registered in England & Wales no. 07839571, all of 18 St. Swithin’s Lane, London, EC4N 8AD.
At Triple Point we know that when planning for retirement and inheritance tax, you require a Business Relief solution that is as flexible as it is robust; providing you with access to your money and allowing you and your loved ones to benefit from your years of hard work.
Contact your Succession Wealth Planner to find out more.
This is a financial promotion issued by Triple Point Investment Management LLP
Triple Point Estate Planning Service
The Triple Point Estate Planning Service is a clear and straightforward investment solution that aims to achieve 100% relief from inheritance tax after two years without surrendering control or access to your capital.
www.triplepoint.co.uk
Succession NEWS 11
FUNDING YOUR CHILDREN’S EDUCATION
University is increasingly expensive. Succession News considers how to help your children pay for it.University tuition fees remained a hot topic in the General
Election campaign, but for the time being at least, the
student - or their parents - must bear the burden. Fees will
increase to £9,250 in the 2017/18 tax year and continue to
rise in line with inflation thereafter. There had been talk of
making higher fees dependent on improved teaching, but
there are no plans to implement this before 2020/21.
At the same time, the cost of student debt continues to rise.
Student loans are subject to a sharp increase in interest rates
in the Autumn – moving from 4.6% to 6.1%, putting them well
ahead of the interest rate on normal personal loans. Many
parents will feel uncomfortable about their children starting
out in life saddled with significant debt and will, therefore,
want to help out both for tuition fees and living expenses.
Living expenses very much depend on the university, but
the University of Bristol estimates that they will add another
£9,000 to £13,000 each year to a student’s bill (1.). The
University of Oxford suggests a range of £11,000 to £17,000
(2.), while Edinburgh University has a lower band of £8,000,
rising to £16,000 (3.). Either way, to emerge debt-free from
university, parents would probably need to support their
children to the tune of £60,000 or so.
There is no easy solution to raising the money that you’re
likely to need. Starting early is key to let the power of
compounding do its work. If you start when your child is
5, you’ll need to save around £225 a month to raise a pot
of £50,000 (assuming a growth rate on your investment of
5%). If you start at 15, you’ll need to save around £1,250 a
month to hit your target. While judging a child’s academic
potential may be tricky at 5, if they turn out not to be the
scholarly type, it would be a boost to your pension pot if you
find yourself with £50,000 that is now not committed.
If you start saving for university fees early, it also allows you
to invest in riskier assets, which may have greater growth
potential over the long term. This is particularly important
when cash rates are low, and may not beat inflation. (For
example, the top-paying easy-access savings accounts
currently pay 1.1% (source: Savings Champion). With inflation
running at 2.6% (4.), investors may find it erodes the real-
world value of their pot over time. For those with a longer
time horizon, your Succession Wealth Planner can discuss
the investment strategy that best suits your circumstances.
Junior Isas can be an effective way to save for living
expenses at university. You can put in £4,128 per year (17/18
tax year) and the income drawn out will be tax-free. The
only problem is that parents have no control over how it
is spent and experience suggests that handing an 18-year
their first taste of freedom with a £50,000 lump sum may not
deliver the right outcome. Some parents may be more
comfortable using their own Isa allowance, rather than
relying on their children.
For older parents, it may also be possible to use a pension.
You can access a pension from age 55 and can take 25%
tax-free up front, which may help pay for fees. However,
this is a delicate piece of tax planning, and there are
implications to taking your pension early. Your Succession
Wealth Planner will be able to help you if this is a route you
would like to consider.
For more information, talk to your Succession Wealth Planner.1. http://www.bristol.ac.uk/fees-funding/advice/living-expenses/2. https://www.ox.ac.uk/students/fees-funding/living-costs?wssl=13. http://www.ed.ac.uk/studying/international/finance/cost-of-living4. https://www.ons.gov.uk/economy/inflationandpriceindices
Succession NEWS 13
BANKING ONMUM AND DAD
Succession News explores how you can help your children to buy their first property.As house prices rise and incomes stagnate, parents may
be increasingly concerned that their children will never be
able to get onto the property ladder. The ‘Bank of Mum and
Dad’ is now the 10th biggest UK mortgage lender (1.). As
parents give their children a helping hand, they are now
involved in a quarter of all UK property transactions.
A priority for many parents will be ensuring that their children
have a deposit. The average first-time deposit has more
than doubled since 2007 to stand at over £32,000 (2.).
While some parents will choose simply to save up for their
children over a period of years, other parents have used
the capital in their homes to fund deposits for their children.
Lenders have made this easier, by relaxing age limits on
mortgages. It is now possible to have mortgages ending at
age 70 and beyond.
For others, equity release or lifetime mortgages may be an
option. These allow you to take part of the capital in your
home and keep living there. The loan is repaid on death,
along with interest. While costs need to be calculated
carefully, these products can also help mitigate inheritance
tax by reducing the overall value of your estate. Used
properly, they can give children capital when they need
it, while also reducing the tax they pay on your estate. As
such, they are worth considering, though specialist advice
is needed and your Succession Wealth Planner can put you
in touch with our specialist team.
Parents may also be able to help their children with a
guarantor mortgage. These mortgages are offered by most
of the major lenders and pass some or all of the liability for
a mortgage taken out by the child onto the parents. This
helps people whose salary may not be high enough to
meet lenders’ criteria for the amount they want to borrow.
However, it does mean that the parents are on the hook if
children do not make their repayments and you may need
to forge some agreement with your children about what to
do if they lose their job or can’t make repayments.
Where possible, children should take advantage of the
various schemes to incentivise home ownership. Help-to-
buy and Lifetime ISAs are Government-sponsored schemes
designed to help first-time buyers save for their deposit. For
Help-to-buy, the Government will add 25% to any savings,
up to a maximum of £3,000 on savings of £12,000 (3.). The
money can only be held in cash, and the top rates are
currently 2.25% (4.).
Lifetime ISAs were introduced at the start of this tax year.
If you’re under 40, you can put in up to £4,000 per year as
cash savings or stocks and shares. The Government tops up
your contribution by 25%, and the proceeds can be used for
a first home or retirement at 60 or over (5.). People can use
the money for other purposes, but the Government will claw
back its contribution, and any gains, so it is worth ensuring
that it is used for the intended purpose. For both types of ISA,
there are limits on the property price - £250,000 for the help-
to-buy (£450,000 for London) and £450,000 (all properties)
for the lifetime ISA.
Children should not neglect conventional savings options as
well. Everyone has an annual ISA allowance of up to £20,000
(this includes the Lifetime and Help-to-buy ISA allowances if
they are being used). In practice, if your children are looking
to buy in the relatively short-term (within three years), they
will need to hold the money in very low-risk investments. If
they have a longer-term horizon, they can probably afford
to take a little investment risk to try and achieve stronger
capital growth and some protection against inflation.
If your child is seeking a foot on the housing ladder, talk to
your Succession Wealth Planner about the most appropriate
way to help them, without compromising your own long-
term financial planning.
For more information, talk to your Succession Wealth Planner.1. http://www.bbc.co.uk/news/business-397780292. http://www.bbc.co.uk/news/business-386054793. https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-isa4. https://www.savingschampion.co.uk/best-buys/personal/help-buy-isa/5. https://www.gov.uk/lifetime-isa
Succession NEWS 15
‘MUM, DAD, I’M GETTING MARRIED.’
Succession News Magazine looks at how to mitigate the costs of the BIG day.When your daughter announces that she is getting married,
early excitement may turn to horror once a realistic appraisal of
the cost of cake, venue, dresses and special touches has been
done. The average wedding costs more than £30,000 (source:
Bridemagazine.co.uk) - and your daughter may have even
grander plans.
While you can do your best to rein in costs, managing a bride’s
expectations is never easy. It is still traditional for the bride’s family
to pay for the majority of a wedding with the groom paying for his
suit, the ring(s) and the honeymoon.
While it may seem far-fetched to start saving when your little girl
is more interested in Peppa Pig than Mr Right, starting early is your
greatest weapon. The sooner you start saving, the less it will cost
you. If your daughter chooses not to get married, you can always
add the cash to your pension pot.
If you start saving early, it does not pay to be too cautious
in your investment approach. And with a 10-15 year time
horizon, it may be counterproductive to keep everything
in cash.
Not every story has a happy ending, and while it may not be
pleasant to think about it, it would be naïve not to prepare for the
eventuality of divorce. If you believe the marriage may have a
short life span, make sure family assets are protected. Prenuptial
agreements are unromantic, but they have their place,
particularly where there are stepfamilies or children involved.
While prenuptial agreements are not strictly enforceable in the
UK, they are now used as a key reference for court decisions.
Equally, it may be worth talking to your Succession Wealth Planner
about a bloodline trust. This can help protect family assets,
ensuring that wealth is only passed to direct descendants.
You can also use a wedding to do a little inheritance tax
planning. ‘Gifts in consideration of marriage’ attract favourable
IHT treatment. The first £5,000 of a gift by a parent of either part
of the marriage is exempt, so a couple can receive up to £10,000
from their parents. The first £2,500 of a gift by any other relative,
such as grandparents, is also exempt. Everyone else can make
gifts of up to £1,000.
Finally, while it is easy to get carried away with the idea of ‘one
big day’, budgetary discipline should not be abandoned. And
it could be an opportune time for you to introduce the Happy
Couple to the discipline of financial planning with your Succession
Wealth Planner.
For more information, talk to your Succession Wealth Planner.
Succession NEWS 17
KEEPING YOUR FAMILY SAFE Succession News helps you plan for the unexpected and you could save your family a lot of problems.Life doesn’t always go to plan. It may seem morbid to plan
for the worst, but illness, injury or redundancy can have a
serious impact on your family’s financial future and around
a third of households (Source: ING Bank) have nothing set
aside for emergencies. There are a number of important
measures you should put in place to safeguard your family.
Life insurance should always be a top priority. It is a relatively
inexpensive way of ensuring that your family is protected
if you die. You make payments over a period of time and
it pays out a lump sum on death. You can make higher
payments more to receive a larger lump sum at the end
and the cost will also depend on your age and health.
The amount needed varies greatly from person to person
- the size of the mortgage, how many dependents still live
at home. It will also depend on existing assets and the
insurance cover you have elsewhere: For example, you
should consider how much you may receive from your
company - many have a ‘death in service’ benefit, which
can amount to 3-4 times your salary. Self-employed, or
those running their own business, will not have automatic
provision, so they will need a larger lump sum.
However, death is not the only consideration. Far more
common is a serious illness that leaves you unable to work,
or redundancy. Having a few months’ living expenses held
in cash is your first line of defense. Financial planners usually
recommend holding at least three months to allow you
some breathing space if you lose your job for any reason.
You may also want to consider income protection insurance,
which would kick in after a period of illness or injury. The
cost will vary according to your age, state of health and
the amount of income you are looking to replace. If you
want to pay a little less, you can defer the point at which
the policy kicks in: You may decide that you can cope for six
months or so, but would need protection thereafter.
Policies vary in the conditions and situations they cover
and the amount of income they provide, so you need to
examine your needs carefully. You may find that pre-existing
conditions are not covered. Again, you should also look at
the extent to which your employer provides protection if you
are on long term sick leave. The Government will provide
some benefits, but these are unlikely to be high enough to
sustain you in the longer-term.
In general, some cover is better than none. Even if you
can’t afford to take out life insurance or income protection
insurance to replicate the income you contribute to the
family coffers in full, it is worth taking out a smaller amount.
Long-term illness, redundancy or any other material
change in your circumstances may necessitate changes
to Your Succession Plan. You may want to make smaller
contributions for a while, or you may need to start drawing
an income from your investments. You may want to retrain.
Your Succession Wealth Planner will help you through
the likely implications and tell you how it impacts your
long-term goals.
Planning for the unexpected is difficult; it is far easier to
believe that nothing bad will happen. However, knowing
that you have a plan can be reassuring at times when you
have many other things to worry about.
For more information, talk to your Succession Wealth Planner.
We don’t just take a passive role in the companies we invest in.
We make ourselves heard on behalf of our investors.
The value of investments and any income from them may fall as well as rise, and you may get back less than you invest. Details of the specific and general risks associated with the funds mentioned are contained within the Key Investor Information Documents. Legal & General (Unit Trust Managers) Limited. Registered in England and Wales No.1009418. Registered office: One Coleman Street, London, EC2R 5AA. Authorised and regulated by the Financial Conduct Authority. *As at 31 December 2016.
Legal & General Index Funds
We’re one of the UK’s largest index managers with
£319.8bn in index funds*. We leverage our scale
and indexing expertise to offer clients the most
cost-effective index funds we can. But we also
engage with companies to represent investors’
interests, effect change and improve company
performance. Because we believe that good
corporate governance protects the long-term
prospects of our investors. But also, because
it’s the right thing to do for the next generation.
For more information please contact your Succession Wealth Planner
LGIM0091_Loudhailer_SN_297x210.indd 1 11/07/2017 16:01
Succession NEWS 19
CHILDREN AND THEIR RETIREMENT PLANNING......SURELY SOME MISTAKE!
First some basicsThe amount that can normally be contributed to a pension for a child, on the basis (very likely) that they have no relevant earnings in any one tax year, is £3,600 gross or £2,880 net. In other words, there is automatically a 20% uplift by virtue of the tax relief granted on the contribution. Additionally, the contributions are invested and grow in a tax-free environment.
A universal lawWe know that compounding of returns over the long-term can produce very powerful outcomes for investors. Consider the idea of making your child a millionaire by the time they reach retirement - that is not beyond the realms of possibility. Ask your Succession Financial Adviser for advice on how compounding of returns can play such a crucial part in the creation of a meaningful pension pot.
Do not underestimate the importance of saving on behalf your children and grandchildren for their retirement. It allows you to build a fund for your loved ones in a highly tax efficient environment and provide a solid foundation for their retirement. For further details please contact your Succession Wealth Planner.
Important InformationThe information presented herein is for illustrative purposes only and does not provide sufficient information on which to make an informed investment decision. This document is not intended and should not be construed as an offer, solicitation or recommendation to buy or sell any specific investments or participate in any investment (or other) strategy. It is recommended that potential investors should seek advice concerning the suitability of any investment from their Financial Adviser. Po-tential investors should be aware that past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and they may not receive back the amount they originally invested. LGT Vestra LLP is authorised and regulated by the Financial Conduct Authority.
WHY IT’S A GOOD IDEATO START SAVING FOR YOUR CHILD’S RETIREMENT NOW
Succession NEWS 21
Succession News Magazine explores the trend for children’s pension planning - start early and save regularly to given your children a pensions head start.When you welcome a new baby into the family, picking a
pension for them is unlikely to be your first priority. However,
there are real advantages in starting a pension for your
children at the earliest possible moment.
The ‘savings crisis’ continues to pose a problem for
individuals and Governments alike. As pensions have
become increasingly unaffordable both for the state and
for companies, the responsibility for later-life provision has
been pushed back on individuals. This is likely to become
more acute in future generations as governments have to
contend with higher and higher debt burdens.
With this in mind, parents may want to give their children
a head start. Junior ISAs are often the first port of call for
parents saving for their children. However, it is only possible
to save up to £4,128 per year (1. 17/18 tax year) and the
child becomes entitled to the pot at age 18. That is great
if you have a responsible, strong-minded 18-year. But
some 18 year olds are not, and parents may prefer to
exercise more control. Either way, it is worth considering
additional options.
On the face of it, starting a savings plan for your child
where they can’t withdraw the cash until they are 55 may
seem cruel, but there are several attractions to a pension:
Children’s pensions attract the same tax relief as a normal
pension, so even though your child doesn’t pay tax, the
taxman will add 20% to all contributions to a maximum of
£3,600 each year. If you invest £2,880, the government will
add £720 (2.).
The effect of compounding over all those years is significant.
Starting at birth and assuming a growth rate of 5%, £300
a month would give a pot of £1,047,850. Of course, you
may want to pass on responsibility for contributions to your
children after age 18, but either way, you have given them
a head start. To put this in context, the same £300 a month
started at 30 would only give a pot of £178,650.
This lengthy time frame also allows you to take more
investment risk. You may have as long as 40-50 years to
invest, meaning you can consider a higher level of
investment risk.
Importantly, you need to make sure that any investment
keeps pace with inflation. Assuming a long-term inflation
rate of 2% (the Bank of England’s current target), investors
can expect the real value of their capital to halve every
35 years.
Another advantage of a pension, or indeed any other type
of saving, is a behavioural one. It gets children in the habit
of saving, which is a great lesson for life. These habits can
help ensure their financial security for life.
Of course, there are also disadvantages: Children’s pensions
will not help with school or university fees (though it may be
possible to use your own pension for this if you have children
later in life). The money is tied up for a long time and it is not
possible to get access to it. As such it is best to combine it
with another form of savings, such as a Junior ISA, or your
own ISA. Either way, in saving money into a pension for your
child, you may give them the luxury of never having to worry
about their retirement. They might even thank you for it.
For more information, talk to your Succession Wealth Planner.1. https://www.gov.uk/junior-individual-savings-accounts/overview2. https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/ pensions-and-tax/tax-relief-and-contributions
Succession NEWS 22
ARE PENSION CONTRIBUTIONS GOOD FOR IHT PLANNING?
Cascading your wealth through the generations via a pension can be a great way to look after family members. Would you like to invest in your children or grand children’s future as you know they will not be in the golden era of pensioners?
Our case study below discusses how a grandfather could
use a pension to look after his grandchild’s future. This does
not constitute financial advice.
A pension for Olivia
Michael, 62 is a retired surgeon. He is widowed with one
son, Matthew who is 32. Michael is a member of the NHS
pension scheme and he is receiving pension income of
£50,000 per year. Matthew’s first child, Olivia, is 1.
Michael has decided that he would like to save money for
Olivia. He doesn’t want tied into putting large amounts into
a trust or Olivia to be able to access it until she is older. His
adviser explained that pension contributions might be a
good idea.
Michael sets up a pension plan for Olivia, paying £2,880
per year which is then grossed up with tax relief to £3,600.
Although Olivia doesn’t have any earnings, she is still
entitled to this tax relief from the government. £3,600 is the
maximum allowed for tax relief if there are not any relevant
earnings, such as salary. The value of an investment may go
down as well as up and Olivia may get back less than has
been paid in.
An annual contribution of £2,880 is set up for every January
around Olivia’s birthday. If Michael pays this until just after
Olivia is 18, with 5% net growth on the fund, the fund value
will be £101,277*. Even if no more contributions are made
and still assuming 5% growth, then just after Olivia’s 60th
birthday, the fund will be worth £786,067. A nice pension
fund for Olivia and if the worst were to happen and Olivia
died then Olivia’s beneficiaries would receive the pension
death benefit.
Michael could carry on paying pension contributions
after Olivia is 18 or he could think about paying the £2,880
towards university fees or helping Olivia with a deposit for a
first house.
Michael’s contributions to Olivia’s pension fund mean
that his bank balance is reducing which is good news if
inheritance tax might be a problem on his death.
Instead of sitting in a bank account which would form part
of Michael’s estate on death, his wealth is passing to Olivia
to help her future. As Michael is giving away less than £3,000,
which is within the annual IHT exemption, he immediately
saves on the IHT. Olivia can add money herself in years
to come or it can just grow in a tax efficient environment.
Please note tax rules may change, and depend on your
individual circumstances.
Clare MoffatSenior Technical Manager at Prudential
To find out more about how Prudential can help
with your investment planning contact your Succession
Wealth planner.
* This calculation takes into account inflation.The Prudential Assurance Company Limited (PACL) is registered in England and Wales. This name is also used by other companies within the Prudential Group. Registered office at Laurence Pountney Hill, London EC4R 0HH. Registered number 15454. Autho-rised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. Unlike the income from a single fixed income security, the level of income (yield) from a fund is not fixed and may go up and down. Sub-investment grade bonds have characteristics which may result in a higher probability of default than investment grade bonds and therefore a higher risk. For funds that use derivatives, their use may be beneficial, however, they also involve specific risks. Derivatives may alter the economic exposure of a fund over time, causing it to deviate from the performance of the broader market. For more information concerning the risks of investing, please refer to the Prospectus and Key Investor Information Document (KIID). Financial promotion issued by Royal London Asset Management June 2017. Information correct at that date unless otherwise stated. Royal London Asset Management Limited, registered in England and Wales number 2244297; Royal London Unit Trust Managers Limited, registered in England and Wales number 2372439. RLUM Limited, registered in England and Wales number 2369965. All of these companies are authorised and regulated by the Financial Conduct Authority. All of these companies are subsidiaries of The Royal London Mutual Insurance Society Limited, registered in England and Wales number 99064. Registered Office: 55 Gracechurch Street, London, EC3V 0RL. The marketing brand also includes Royal London Asset Management Bond Funds Plc, an umbrella company with segregated liability between sub-funds, authorised and regulated by the Central Bank of Ireland, registered in Ireland number 364259, and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.
Registered office: 70 Sir John Rogerson’s Quay, Dublin 2, Ireland. Ref: ADV RLAM P1 0004
In today’s uncertain conditions, choosing the right investment at the right time has become even more of a challenge.
The Royal London GMAPs offer diversified exposure to a broad range of markets and asset types, with the flexibility to adjust positioning as the manager sees fit. This range of six multi asset funds spans the risk return spectrum, aiming to offer a solution for many different objectives and risk appetites.
For more information about the Funds, speak to your Succession Wealth Planner.
The Royal London Global Multi Asset Portfolios (GMAPs)
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