Why financial planning is important at every age

THere are many questions you probably have about managing your money, no matter what stage of life you are at. Can I afford to retire? What do I need in retirement? How can I be tax efficient? And how can I help my family financially?

Alice Harmer is a personal wealth advisor at Schroders Personal Wealth (SPW), whose aim is to improve the way financial advice is delivered by making it easy and affordable for more people. Harmer says financial planning is important at any age.

“We are seeing more and more young people wanting help with their finances. The sooner you start, the better the future can look in terms of financial planning. The idea is that we create a financial plan for a client and recommend that the plan be reviewed regularly to ensure that it is still suitable for the client, whatever the future holds,” says Harmer, whose clients include young People range from those on a good income or just starting a family to older clients who want assistance with inheritance tax planning and transferring assets to their children.

Pensions and taxes

Financial planning issues are coming into focus following the Autumn Budget 2024, which announced that from April 2027 most pensions will be included in an individual’s estate for inheritance tax purposes.

Harmer says she gets a lot of questions from clients about pensions and inheritance tax. Currently, pensions do not count as part of the estate and are therefore generally not subject to inheritance tax. However, if the legislation comes into force, this will change from April 2027 and could increase the amount of inheritance tax (IHT) liability for estates falling under the new rules.

“As we still don’t know all the details, we encourage our customers to be proactive so that when fuller details are confirmed, depending on your situation, you can start making appropriate plans before 2027,” says Harmer.

Typically, inheritance tax is charged on estates worth more than £325,000, known as nil rate, or £500,000 if you leave a family home to your children or grandchildren, unless relief or exemptions can be granted. Married couples can get double the allowance, meaning they may be able to pass on total assets of more than £1 million free of inheritance tax if they are married or in a civil partnership. Inheritance tax of 40 percent applies to amounts above these limits.

There is also the possibility of “double taxation” as beneficiaries will also have to pay income tax on inherited pensions if the person dies when they are over 75 years old. It is important to note that the rules have not yet been finalized and revisions may occur before they come into effect.

“The change has just been announced and we see great concern about it. Further details about how it will work in practice will be clearer when the bill is fully developed,” explains Harmer. “What’s really important is not to have a knee-jerk reaction because the change won’t happen for two years and we still don’t know all the details.”

Another consideration is that if your estate (everything you own, including property and savings) is worth more than £2 million, you will lose access to the residential property nil rate. This is an additional grant worth £175,000 per person (£350,000 for a married couple) if you have a home that will be passed on to children or grandchildren. If you are a married couple and your estate is worth £2.7m, you will lose the full £350,000 domicile tax allowance and your estate will only be entitled to the standard inheritance tax allowance of £650,000 (£325,000 per person).

Look at the big picture

During a financial planning session, an advisor will discuss your wishes and goals as well as your finances.

The most tax-efficient ways to save are then discussed. ISAs and pensions are usually good starting points for long-term savings. Despite changes to pensions and inheritance tax, pensions are still a good way to save for retirement as you get tax relief on contributions, growth is tax-free and you may benefit from employer contributions if you are employed.

When you retire, the first 25 percent of a pension is tax-free when you withdraw money, the rest is subject to income tax based on your annual income.

ISAs are also a tax-efficient way to save as any growth or earnings in the ISA are tax-free. Each individual can contribute up to £20,000 into ISAs per tax year.

“We provide holistic advice, be it for an individual client, a couple or a household if you are in a relationship, rather than just looking at individuals in isolation,” she says. “Using both ISA allowances is likely to give you better quality planning as you consider the bigger picture of your household.”

Harmer adds that the stage of life someone is in really matters when it comes to saving for a pension or ISA. “The caveat with annuities is that you have a limit on when you can withdraw that money. Currently you can only receive a pension at the age of 55, in 2028 it will be 57 years old. With an ISA, there are no age restrictions on withdrawing money. This is where planning and a balance between the two could be really important. The idea is to make both as tax efficient as possible.”

Plan your financial future

In an initial conversation, a financial advisor will ask you about your goals, wishes and what is important to you.

After key financial data has been collected, if applicable, your financial advisor can then create a cash flow model that assesses how your current financial situation matches your financial goals. This visualizes what your finances might look like in the future to show whether they could be what you want.

Some assume that financial planning is only for people with a lot of money, but Harmer says the entry point is more accessible than many realize.

“It is free to have an initial meeting with SPW. We then discuss our range of services with the customer,” says Harmer.

There are no hidden fees or charges at SPW, and new customers only pay if you choose to implement the recommendations in your personalized financial plan.

When seeking advice, ensure you find a regulated financial adviser by searching the FCA register or contacting a reputable firm. Finances and taxes are complicated, especially if you have a lot of money. Therefore, make sure that the option you choose best suits your needs and financial goals – be it inheritance tax planning, hedging planning or retirement planning.

“Ideally, I would want an advisor who can do all of these things, so they can look at your situation holistically and give you comprehensive advice that meets all of your needs. This is where a company like Schroders Personal Wealth is valuable because we are specialists in a wide range of areas,” says Harmer.

For more information, visit Wealth Management | Lloyd’s Bank

_{Disclaimer – This article is for informational purposes only. It is not intended as advice. If necessary, individual advice should always be sought.}

_{Please keep in mind that the scenarios discussed and what is right for each customer will depend on their personal circumstances. This also includes the tax treatment mentioned, which can of course change in the future. As always with any investment, there are no guarantees and customers may not receive a return on their original investment.}

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