February 2016

Open-handed grandparents – Generosity shows no sign of stopping

Forget the headlines about post–pension freedoms with retirees spending their nest egg on a Lamborghini – new research shows that 2.4 million UK grandparents* have either withdrawn money from their pension to support their grandchildren or plan to in the future.

According to new research from LV=, a quarter of generous grandparents who have already given away money to their grandchildren* have taken the funds from their pension. A further one in six plan to use their pension for this reason once they reach retirement age.

Substantial amounts

Open-handed grandparents are willing to give away substantial amounts to their grandchildren, whether from their pensions, savings or wages, with the average grandparent having already spent £1,633. More than one in twenty have given gifts of more than £10,000.

The generosity shows no sign of stopping, with many grandparents (56%) planning to give away even more money in the future. The average grandparent expects to give away £2,938 in the coming years, with charitable grandmas expecting to give away £173 more than granddads on average.

‘Living inheritance’

Pension savings are used to help with a wide range of things, from helping grandchildren get on the housing ladder to other high-ticket items such as university fees or cars. A similar number would help out with more day-to-day expenses like bills and hobbies.

Grandparents often view the financial gifts they make as a ‘living inheritance’, with more than a third wanting to be around to see their grandchildren enjoy the money**.

With one in five retirees using their pension to help out, it’s important to plan for retirement and have enough money left for yourself, as even smaller outgoings such as bills can become harder to meet later in life, as well as the flexibility to access your money.

Being the generous generation can have its downsides

The desire for grandparents to help grandchildren is part of human nature. But being the generous generation can have its downsides – with greater longevity and increasing costs of care in later life, some retirees may find they have given away too much. If this is something you are considering, speak to us first to review your options.

Source: According to ONS Population Pyramid, there are 49,533,900 people aged over 18 in the UK. The research found that 39% of a sample of 2,002 adults were grandparents, indicating there are 19,318,221 grandparents in the UK. 56% of grandparents have helped or plan to help their grandchildren, and 22% of these would use their pension to do so. Therefore, 2.38 million grandparents have helped or plan to help their grandchildren, using their pension.

* According to research carried out by Opinium Research on behalf of LV=, 25% of grandparents have already taken money from their pension to give to their grandchildren.

** Statistics from research carried out on behalf of LV= by Opinium Research in June 2014 (total sample size = 2,043). The press release for this research was issued on 20 June 2014.

The research was carried out by Opinium Research from 13–16 October 2015. The total sample size was 786 British grandparents over the age of 30, and the survey was conducted online. Results are weighted to nationally representative criteria


Time to invest? – Take a long-term view to wealth creation

Stock markets can be unpredictable. They move frequently – and sometimes sharply – in both directions. It is important to take a long-term view and remember your reasons for investing in the first place.

Occasional downturns

Be prepared to view the occasional downturns simply as part of a long-term investment strategy, and stay focused on your goal. Historically, the longer you stay invested, the smaller the likelihood you will lose money and the greater the chance you will make money.

Of course, it’s worth remembering that past performance is not a guide to what might happen in the future, and the value of your investments can go down as well as up.

Time to grow

Give your money as much time as possible to grow – at least 10 years is best. You’ll also benefit from ‘compounding’, which is when the interest or income on your original capital begins to earn and grow too.

There will be times of market volatility. Market falls are a natural feature of stock market investing. During these times, it is possible that emotions overcome sound investment decisions – it is best to stay focused on your long-term goals.

Don’t try to time the market

Resist the temptation to change your portfolio in response to short-term market movement. ‘Timing’ the markets seldom works in practice and can make it too easy to miss out on any gains.

Holding period

Warren Buffett, the American investor and philanthropist, puts it very succinctly: ‘Our favourite holding period is forever.’ Over the long term, investors do experience market falls which happen periodically. Generally, the wrong thing to do when markets fall by a reasonable margin is to panic and sell out of the market – this just means you have taken the loss. It’s important to remember why you’re invested in the first place and make sure that rationale hasn’t changed.

Regular portfolio reviews

It is important to carry out regular portfolio reviews. Over time, your attitude to risk is likely to change. If you are approaching retirement, for example, you may want to preserve capital or generate an income, while if you are investing for growth, you may need to take on more risk to potentially boost returns.

There are two key questions that you should ask yourself: firstly, ‘How much capital can you afford to lose?’, and then, ‘How long is your investment horizon?’ The general rule is that the more risk you are prepared to take, the greater your potential returns could be. At the same time, however, it is important to realise that there is a greater potential for loss.

Reviewing the amount of risk

As these two factors can change over time, it is crucial that you are able to adjust your portfolio to reflect them. Please remember that the value of your investments and the income received from them may go down as well as up, and you may not get back the full amount invested.

Exposure to different markets

Income-seeking stock market investors may want to diversify away from their home UK market to take advantage of dividend opportunities globally. Meanwhile, in fixed income, the current low yield environment means that investors may need to look across a wider range of global bond sectors and markets to maintain attractive future returns. Either way, you need to make sure you have the right levels of exposure to different markets for the outcomes you’re looking for. However, please note that diversification does not guarantee investment returns and does not eliminate the risk of loss.

Investing outside of the UK can involve a higher degree of risk and also involves a degree of exchange rate risk. If you are in any doubt about the suitability of an investment or understanding your risk appetite, you should always seek professional financial advice.





Inheritance Tax – Getting to grip with the numbers

£325,000 – The first £325,000 value of your estate is called the ‘Nil Rate Band’ because, although it is taxable to Inheritance Tax (IHT), it is taxed at 0% (tax year 2015/16).

40% – Currently, IHT is payable on death at this rate on the value of your net assets over £325,000 (tax year 2015/16).

7 – The number of years you must survive if you give away large amounts of money or valuable assets while you are alive, otherwise HMRC will tax you for IHT as if you still owned them when you die (tax year 2015/16).

£3,000 – Everyone has an ‘Annual Exemption’ from IHT on gifts of this amount every tax year (tax year 2015/16). If you did not use this exemption in the previuos tax year, you can carry it forward to this year.

£5,000 – If your children get married, you can give them or their new spouse a lump sum up to this value completely free of IHT (tax year 2015/16).

£2,500 – If your grandchildren get married, you can give them or their new spouse a lump sum up to this value completely free of Inheritance Tax (tax year 2015/16).

£650,000 – On the death of the survivor from a married couple or registered civil partnership, where the estate exceeds this amount, IHT will usually only be paid on the excess. The necessary claims need to be made to HMRC with the appropriate time limits (tax year 2015/16)

If you have any questions or would like more information on Inheritance Tax planning, please get in touch – we look forward to hearing from you.

Tax advice which contains no investment element is not regulated by the Financial Conduct Authority.


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