A report has just been published about UK Debt. The typical person in Briton can expect to become free of debt at the age of 69. This is 12 years later than they hope to. The report by the Centre of Economics and Business Research showed the extent of the debt crisis in the UK.
People typically hope to clear their debts by the time they reach 57, but the truth is that they are more likely to still have debt at the age of 65, the age most people would like to consider retiring.
The reality is that they are likely to have hit their 69th birthday before they have paid off all their loans. This research confirms the data obtained by the Office for National Statistics (ONS) data on uk debt.
The UK adult population are now having to wait later in life to become “debt-free” Someone aged between 16 and 24 years old now could be aged 74 by the time they can celebrate becoming debt-free, the report found. Rising property prices lead to bigger mortgage debts.
Throughout the UK there are regional variations, for example a home owner in the North East could become debt free aged 57, whereas households in London will not celebrate their debt-free birthday until around 20 years later - at the age of 77.
The report confirms that householder tend to be over optimistic about the time it takes to repay the debts they have. Consumer research suggests that most people feel they could be debt free by the age of 50. In reality for most people this is very optimistic
The report concluded that most people are in fact aged 64 before non-mortgage debts are cleared.
UK Debt. Is it out of Control?
For the younger age group 18 to 24 year olds, the report paints a dim future. This group are the most optimistic about paying off debt early, have the highest amount of debt per person on average and will not pay off non mortgage uk debt till the age of 66.
When mortgages are taken into account, households containing people aged 35 to 44 years old tend to be the most indebted, the report found, owing £87,800 typically, as the average age of a first time buyer is 31 and most households have mortgages and other financial commitments at this age.
How to help yourself
Whilst it shows a big problem there are ways to improve the situation from a personal perspective. Having a structured financial plan to repay debt and consistently reviewing income and expenditure on an ongoing basis is the key to reducing debt. A review of expenses such as Gas, Electricity, Water and other regular bills can help.
Long term cash flow planning can really help you to focus on the future and how to plan in the short, medium and long term.
Obtain impartial advice from an independent financial planner that will help you focus on what is important not just now, but in the future. An alternative is to contact the Citizens Advice Bureau
If you want to find out more about cash flow planning, please contact us.
Although the terms are familiar, there is a big difference between the types of service your Financial Planner will provide, compared to the work a financial adviser will carry out for you.
Financial Advice relates to the specific task that your planner or advisor will carry out for you. Types of tasks might include arranging an Individual Savings Account or your pension. It addresses the specific needs you have now, not looking into the future. This type of advice can be provided by an independent financial adviser, or a restricted adviser. Restricted advisers can recommend one or a limited number of product providers. Banks and Building Societies usually offer restricted advice.
addresses your long term objectives, dreams hopes and desires for the future, and how you can achieve this. A good financial planner will help you develop a long term financial plan that is continually reviewed and adjusted according to your change in circumstances. The plan should show you what you need to do, to make sure your dreams and wishes come true.
Any long term financial plan should also include an analysis of your income and expenditure (not just now but in the future), your assets and liabilities, your thoughts and feeling about investing as well as your short medium and long term objectives.
A good financial planner should show you how to reduce risk. Whether to yourself, your family, your assets (for example investments, pensions, business and property.
A planner that offers a comprehensive service will work closely with their clients to help them live the life they want not just now, but in the future.
Addressing issues such as never running out of money and maintaining your standard of living in retirement. A cautious and prudent approach to managing your money is at the heart of any good financial plan.
Less than ten years to retirement
For some clients the service advisers carry out will be sufficient. However the closer you get to retirement, arguably you should have plans in place to ensure you finances are mapped out. If you feel that you need a financial plan, always contact your financial planner or adviser. They should be able to help, if not then find one that can help you.
We have developed our Lifestyle financial planning service over the last five years. It is specifically designed to help clients that are within ten years of retirement. If you would like to find out more about our service please contact us.
Over the last few months a lot of articles about the future of financial planning
. The rise of so called Robo-Advisers seems to be in the Sunday press more and more. A Robo-Adviser is an automated system that has asks clients questions about risk in addition to information about their pensions and investments. The software or system then comes up with an informed recommendation to help the client.
Robo-Advisers aim to offer a low cost solution to Financial Advice. Whilst this is great, I do have concerns that this solution may seem too simplistic and could lead to clients making the wrong financial decisions.
The advice will only be as good as the software and programming behind it. I don't believe its possible to build a Robo-Adviser service that will be able to take into account every aspect of a clients own personal circumstances.
If a client is looking purely for simple advice on their finances then Robo-Advice might be appropriate. However what about more complex aspects of true " Financial Planning", such as cash flow modelling, tax planning or generating retirement income? The combination of an adviser that is using the latest technology to help project forward the clients financial plan would in my opinions be a better option.
Many people over the age of 45 generally prefer to deal with someone they know and trust. A good financial planner will be able to help a client identify and prioritise aspects of their finances that are most important to them. This ability is developed over a long period of time and can be quite nuanced. Asking the right questions at the right time is one of the most important skills an advisor should possess. You simply can't get the same result from a software driven application. A recent article by Fina Metrica covered the concerns about Robo-Advisers.
The best option
I'm a great fan of technology. I believe the outlook for clients and Financial Planning in the UK is promising. Independent Financial Advisors need to use technology to their clients advantage. This can make a huge difference to the clients personal circumstances and their life.
The new tax year has commenced and whilst many people are aware of the tax breaks available to them, its worth pointing our a few areas of change for this tax year. There are major changes to the ways dividends are to be taxed. Changes to the rates of Capital gains tax will also come into effect from the 6th April 2016. Here's a brief outline:
ISA Allowance 2017/18
The ISA allowance for this tax year has increased to £20,000, it is still important to use your allowance if possible. Unfortunately, the interest on cash Isa is at an all-time low. However, for many long term investors a low risk stock and shares Isa might be an alternative option.
New Personal Savings Allowance
The Chancellor has introduced a new personal savings allowance from 6th April 2016. The first £1,000 of savings interest will be tax-free if you are a basic rate taxpayer, whilst the first £500 will be tax-free if you are a higher rate taxpayer.
Changes to Dividend Tax
From the 6th April there will still be the £5,000 tax-free dividend allowance for investors. If you hold investments that are not in tax efficient, such as Individual Savings Accounts or pension savings and are subject to the new dividend tax then it is important that you seek financial advice. We would recommend investors should review the impact of the dividend tax changes might have on them.
Capital Gains Tax Rates
The rates of Capital Gains Tax – which is a tax on the profits made from the sale of assets – will be reduced for some people from 6th April 2016. The CGT rate will be reduced to 10% for basic rate taxpayers, while the rate for higher rate taxpayers will fall from 28% to 18%.
However, the capital gains tax rates due on disposal of residential property will remain 18% for basic rate taxpayers and 28% for higher rate taxpayers. The Annual CGT tax-free allowance will remain unchanged at £11,100.
Investors with assets subject to CGT, for example large share portfolios it might be worth reviewing these based on the new CGT rates and the impact of the dividend tax changes.
Making a contribution into a pension is still one of the most tax efficient investments you can make. As well as growing in a tax efficient way, pension contributions can be used to reduce your current income tax liability. If you own and run a limited company, then your company could make an employer contribution to reduce its corporation tax bill.
At retirement you will be entitled to up to 25% as a tax free lump sum and the remaining funds are used to generate a taxable income. The rules relating to pensions and retirement planning can be complicated and not suitable for everyone. We recommend you seek advice on this subject.
These are just a few of the financial advice tips for 2017/18. If you want to talk in more depth please feel free to contact us.
Over the month weeks and months, we are looking to improve the personal finance portal (PFP) for our clients. The first stage is to introduce a live chat, audio and video service whilst clients are logged into PFP. This is the first level of improvements we will be making over the coming months. The live chat service is safe and secure.
Quite often friends and clients ask me about the best pension plans and I can understand. Pensions are complicated, even more so since Pensions Freedoms came into play.Successive Governments have tinkered with the pension rules and regulations time and time again. I started in the Financial Services Industry in 1984 and I can say each year the government has made some sort of change. Sometimes for the better or worse, but usually it adds another layer of complication. Terms such as Lifetime allowance, Fixed Protection, Capped and Flexi Access Drawdown are technical terms that generally confuse the public.In its simplest form a pension is a savings contract with tax breaks written under pension rules.