If you’ve been putting off reviewing your finances, the lockdown is the perfect opportunity to complete some tasks that could help make sure your finances and plans remain on track. With potentially more time on your hands, here are six things to do during the stay at home period.
- Review your will and Power of Attorney
It is estimated that over half of UK adults don’t have a will in place and even more haven’t established a Power of Attorney. These two legal documents are vital for ensuring your wishes are carried out. Even if you do have both of these in place, take some time during lockdown to review them.
A will is the only way to ensure that your wishes are carried out when you pass away. If you already have a will, you can write a new one or add a codicil to make amendments if your wishes have changed. It’s generally a good idea to review your will following life events and every five years.
A Power of Attorney gives someone you trust with the power to make decisions on your behalf should you be unable to do so. Losing your mental or physical capacity to make your own decisions is not something anyone really wants to think about, but a Power of Attorney is important. There are 2 types, one which covers health and wealth decisions and the other covers finances, you should have both in place.
- Update your pension expression of wishes
Did you know that your pension benefits aren’t usually covered by your will? You should complete an ‘expression of wishes’ with each of your pension providers, stating who you would like to benefit from your pension savings if you pass away. As pensions do not form part of your estate when it comes to Inheritance Tax purposes and are likely to be one of your largest saving pots, they are a very valuable asset to consider as part of legacy planning.
- Find out if you have any ‘forgotten’ pensions
Over time you may have accumulated several pensions as you switch jobs. If the pension is small or the employment was from some time ago, it’s easy for pensions to become ‘lost’. The government does have a service that can help you find lost pensions and start taking them into account when it comes to retirement planning. To find out more about pension consolidation, check out Clarity Wealth.
- Check your National Insurance record
It’s easy to check your National Insurance record, you can do so here. This tracks exactly how many full years of National Insurance you’ve paid, as well as any National Insurance credits you’ve received, such as when taking time out of employment to raise children or care for someone. Why is this important? You need to have 35 qualifying years on your record to be eligible for the full State Pension when you reach retirement age. If you have gaps, it may be possible to pay voluntary contributions. The sooner you know there’s a gap, the better position you’re in to make the right decision for you.
- Evaluate financial protection
If you already have a level of financial protection in place, now is a good time to review the policies. As circumstances and priorities change, the policies that are right for us change too.
Whether you have income protection, critical illness cover or life insurance, you should take some time to understand what each policy covers and whether they remain appropriate for you. Life events could mean that your current protection needs to be updated. These events could include starting a family, paying off your mortgage or starting a new job.
If you do not currently have any kind of financial protection in place, it’s worth considering what would happen if your income suddenly stopped, you were diagnosed with a critical illness or the position your family would be left in if you were to pass away. It’s not something anyone wants to think about, but doing so can help you put steps in place to safeguard your and your family’s future.
- Consider making gifts now
The current situation has placed a lot of people under pressure financially. Your finances may be secure, however, your loved ones might not be in the same position and you could feel like providing some support.
If this is the case, making use of the gifting allowance can make sense. Gifts are classed as Potentially Exempt Transfers when given. This means they could be considered part of your estate for Inheritance Tax purposes if you die within seven years of them being received. However, there are some gifts that are considered immediately outside of your estate. This includes the gifting allowance. Every tax year, you can gift up to £3,000 to loved ones, which can be carried forward a year if unused, under this rule.
Other gifts that are exempt from Inheritance Tax include those that are given from your disposable income.
During these times of uncertainty, we know that you may be worried about your finances and long-term plans. We’re still here for you, please get in touch if you have any queries about the above checklist or other aspects of your financial plan.
Please note: A pension is a long-term investment. The fund value may increase and can go down, which would have an impact on the level of pension benefits available. Your pension income may 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 circumstances, tax legislation and regulation which are subject to change in the future.