As England begins the year in a state of lockdown, why not use your spare time to get your finances in good order?
There are steps you can take now to build good habits for the year ahead, giving you the best chance of a prosperous new year.
Keep reading to find out five of them.
1. Organise your paperwork, then compile an ‘ICE’ document
To start the new year in the best possible financial position you’ll first need to get organised. That means gathering up all your important documents. Gather paperwork from your bank, your pension scheme, your insurance provider, along with all other relevant financial information.
You don’t need to keep it all in the same place. In fact, unless you have a safe deposit box it might be better not to, although it is important you know where everything is and that it’s in an order that makes sense to you.
Shred the documents you don’t need as you go along, and if you find the volume of paperwork daunting, consider contacting your providers to ask about going paperless in the future.
Once your files are organised you can put together an ‘In Case of Emergency’ document. This lists where all your original and important documents are held – bank account numbers, pension reference numbers, and insurance policies – as well as contact information for your financial adviser, solicitor, and anyone else your loved ones might need to contact in an emergency.
It’s worth scanning this document to create a digital version too and be sure to inform the appropriate people of where to find it, should an emergency arise.
2. Review your pensions and consider consolidation
While compiling your ICE document you might have realised how many different pensions you hold. If you have had many jobs over the years and started more than one private pension, you may have lost track of some of your providers.
Use the first few months of 2021 to find your ‘lost’ pensions. The Pension Tracing Service is a great place to start.
Once you have a grasp on your pension provision it is time to review it to make sure it is working for you. Do your plans all align with your risk profile? Are some charges higher than others? Do any have valuable benefits you need to be aware of as you approach retirement?
You might consider consolidation. Putting all your plans in one place has several advantages. You’ll know exactly how much you have, you’ll only need to deal with one provider, and you’ll have only one set of contact details to remember, cutting down on paperwork.
There are potential downsides too though, so be sure to speak to us before deciding.
3. Check your protection for any gaps in your cover
Your protection needs change over time so be sure your current life insurance, critical illness, and income protection policies are sufficient.
If you’ve recently stopped working you might have lost death in service cover or other employee benefits such as access to Private Medical Insurance.
Life events such as marriage, divorce, or having a child could alter your priorities, so check through all your insurance documents to find out what you currently have in place. If you are worried about a gap in a particular area speak to us and we can help find the right protection for you.
4. Put a Lasting Power of Attorney (LPA) in place and update your will
Putting an LPA in place might be one of those things you’ve been putting off. Now is a great time to finally get round to it.
An LPA gives you peace of mind that your affairs will be looked after if you are unable to manage them yourself, either through accident or illness.
There are two types of LPA. A Health and Welfare LPA looks after aspects of your daily life and medical care, while a Property and Financial Affairs LPA allows your chosen attorney to handle your finances, pay bills or manage benefits, for example.
Speak to us if you are considering putting an LPA in place.
Also, be sure that your will is up to date. A will is the best way to ensure that your wishes are carried out so keeping it accurate is crucial. As with the protection policies you have in place, big life events could shift your priorities and mean you need to change it.
5. Put money aside for the next generation
Making gifts each year is a great way to give a living inheritance while lowering the potential Inheritance Tax (IHT) liability you leave behind.
HMRC allows you to gift funds tax-free in certain circumstances, thereby taking that amount out of the value of your estate for IHT calculation purposes.
You have an Annual Exemption that for the 2020/21 tax year stands at £3,000 a year. This is the amount you can gift tax-free, and it applies per individual. It can also be carried forward from the previous tax year.
That means a couple could gift £6,000 a year, or up to £12,000 if neither used their Annual Exemption during the previous year.
You might also want to use your normal expenditure out of income exemption to make a regular contribution on behalf of a grandchild. You need to be able to prove to HMRC that the gift has come out of your regular income and that making the gift doesn’t detrimentally affect your normal standard of living.
Get in touch
Whether you are contemplating pension consolidation, looking to put an LPA in place, or want to make full use of your gifting exemption before tax year end, get in touch and we can help. Please email hello@globeifa.co.uk or call 020 8891 0711.
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. Your pension income could also be affected the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
