Did You Know - Autumn 2008
The 3’R’s….Being prepared!
Some of the public believe that the advice process in the UK is designed to produce product sales. Sadly, some advisers adhere to this concept and do not help this belief. With the current economic climate, many clients are looking for planning advice whilst entering what for some may be a new era in their personal life cycle.
The last six weeks has seen a significant change in the economic climate both nationally and globally. Many people and politicians are concerned about the effects of the downturn in the ‘real’ economy when it reaches the High Street.
We are all concerned about the effects on our livelihoods over what has happened in the economy over the last period and this is likely to introduce at least one of the following issues to many. We have referred to them as the 3’R’s which are: Recession, Redundancy or Retirement.
True financial planning can help clients through the issues that may face them in the coming months and guide them accordingly. Whether that be redundancy or retirement, now may be the time to take financial planning advice.
Technically the UK and many global economies are not in recession. However it is likely that a recession will ensue the last financial trading period. This may well see an increase in inflation, although many economies are moving interest rates down to try and help with liquidity.
In poor trading conditions, some employers consider making redundancies and this will leave many people with various issues to consider when facing redundancy. What points should they consider to ensure that they are secure in the immediate term?
So how can a financial planner help you?
I have listed some of the areas to consider when facing redundancy these are:
- Check your life cover and health cover position.
On leaving an employer you may lose not only the increase in your pension benefit, but also cover such as death in service and private medical insurance, check that your life cover and health cover is sufficient for your needs whilst pursuing further employment. - Check your savings position.
It is usually appropriate to maintain three to six months income for a rainy day. If you have this, then ensure that it is earning as much interest as possible in diversified holdings to meet any short-term liabilities. For information, the current position is that the Financial Services Compensation Scheme will protect the first £50,000 of any deposit holdings held with each institution. - Check your debt position.
If you have significant financing/borrowing then you may wish to speak to your lender at the outset to explain your position. Lenders will invariably be helpful to borrowers if they know any difficulties at the outset. Always try to meet your repayments as your home may be repossessed if you do not keep up repayments on your mortgage. - Redundancy payments.
If you are in a position where you receive a redundancy payment, the first £30,000 should be received tax-free. Thereafter it will be taxed at your highest marginal rate. It is possible to consider making an additional contribution to your pension (if appropriate) to offset additional tax. Otherwise, you may wish to consider paying off debts to ensure that you are in a debt free position while seeking further employment. It may be worthwhile checking that your redundancy package is appropriate based on your employment contract/ service/ conditions. Some people choose to refer any redundancy package offer to a solicitor for a second opinion. - Payment Protection Insurance.
If you have existing payment protection insurance, check it’s terms and conditions to ensure that it covers your circumstances and, also, how to make a claim, if required. - Retirement after redundancy.
Some people who reach redundancy may choose (rather than seeking other employment) to look at using their existing retirement benefits to provide income and there maybe points that you may wish to consider for this now.
- As detailed above if your redundancy package is above £30,000, then it may be possible for you to put part of this additional payment into a pension to offset the increased tax liability, although you should seek advice on this point.
- Ensure that your pension benefits are prepared and that you have an understanding of what they are, where they are invested and most importantly, what income they could provide.
- Seek advice with regards to your retirement options to ensure that these will meet your ongoing needs in the shorter and longer terms.
Any of the 3’R’s are likely to prove to be a difficult time and therefore early planning is always recommended to ensure that you as an individual and as a family can see yourself through this period.
Speak to Churchouse Financial Planning Limited on 01483 578800.
Please note that this is for guidance only and we
recommend that you seek further advice from an Independent Financial Adviser
before proceeding further. Churchouse Financial Planning Limited is Authorised and Regulated by the Financial Services Authority. The Financial Services Authority does not regulate taxation advice.
