Seeding Change

Time to Thrive

Blossoming

Introduction

Our blossoming stage of life comes with an entirely different set of financial decisions.

We have previously taken control of our personal finances, and for some of us, put our careers on hold to take care of our families. This stage in our lives is usually when we return the focus to ourselves – our children may be leaving home, or we have reached a point where we are comfortable in our career.

While this stage in our lives is where we come into full bloom, it is also a time when the unexpected can derail us– and it’s better to take stock during a moment of calm, so that you can feel prepared no matter what else is around the corner. 

A moment to take stock

Personal financial planning does not always sit at the forefront of our minds. We may have been diligently making pension contributions, rising through the ranks at various jobs, or have a healthy pot of savings that could be working harder, but not set aside time to understand what this means for our long-term goals.

We are more likely to start seeking financial advice at this stage of our lives – whether it’s consolidating pension pots to a single arrangement, understanding what our retirement provision may look like or considering encashing investments to help provide for family or our personal goals.

Cash flow modelling is particularly useful at this age, a visual representation of your financial circumstances that is easier to understand than simply looking at figures on a page. At Path, we can help you understand what changes you need to make to achieve your long-term goals, with helpful advice on managing any shortfall, tax-efficient investing strategies and small changes that could make the difference when you reach retirement. 

Mapping out our future with a robust financial plan makes sense – receiving tailored financial advice increases the probability of retiring early and increased personal wealth by retirement, with figures ranging from 17%to 39% in the increase of liquid wealth than those individuals that haven’t received formal financial advice [1].

Thinking about retirement

With children leaving home, work, family, and general day to day life, thinking about when and how you want to retire can feel unimportant. We are most likely still decades away from the big event. However, outlining – and sticking – to a general plan is better done as early as possible. 

Some of us would prefer to keep working beyond the traditional retirement age of 65, but a great deal more of us would like to stop working as early as possible and focus on more meaningful pursuits.

Understanding what provision you already have in place is the main starting point when planning for early retirement. The average UK adult is on target to achieve a pension pot of £355,000 and combined with state pension provision, likely to retire on an income of £15,080 per year [2]. If your pension savings are below this level, you are less likely to achieve a comfortable retirement, meaning reduced funds for travelling, holidays and other luxuries.   

On average, individuals in the UK will have held 12 jobs by the time they retire, which could also mean 12 individual pension arrangements to keep track of.

Pension consolidation is the next stage, bringing all of your hard-earned savings together with a coherent investment strategy aligned to your personal values.

Ensuring you know where you stand allows time to make changes to address any income shortfall in your later years – whether that be making further contributions, or seriously thinking about how much you will need and when. Other investments, such as ISAs or General Investment Accounts, can also be explored as alternative means to funding your retirement years.

Caring for elderly relatives

Women are also much more likely to provide care for older relatives during this stage in our lives, in addition to our careers and looking after our younger family – in fact, 58% of family carers are women [3].

Caring is a demanding role – if you have been with your employer for more than six months, you have the right to request flexible working options to help you meet your caring responsibilities. Usually this comes with amending or reducing your working hours, which in turn can have an impact on your personal finances, such as take-home pay and your workplace pension contributions.

If the person you care for qualifies for certain benefits, and your income has reduced, you may be entitled to Carer’s Allowance, of up to £67.70 per week, to help bridge the gap between your reduced income and your caring responsibilities.

In some circumstances, we may need to temporarily leave work entirely to take care of our loved ones. If you receive Carer’s Allowance, you will automatically receive Carer’s Credit, a valuable contribution to your National Insurance record to ensure that you remain on target to receive your State Pension entitlement. Carer’s Credit can also be claimed if you don’t qualify for Carer’s Allowance.

Continuing to build up your State Pension is essential, particularly if your workplace pension contributions have been placed on hold.

Inheritance and bereavement

Sadly, this is also the stage in our lives where most of us may lose someone we love.

Inheritance, and talking about inheritance, is an emotive topic, and the administering of a loved one’s estate a stressful addition when you are grieving. Inheriting a lump sum at the end of the process may cause further anxiety – for some of us, it may be a very large sum of money, with accompanying additional tax, and the confusion of how best to spend, save or invest.

Inheritance is rarely discussed within families, or seen as morbid and taboo, which does not lend itself well to allowing us to plan ahead for what we may receive in future. Understanding what you may inherit, and the complexities of different kinds of assets, such as property or pensions, will have an impact on what you can do with funds.

Receiving a lump sum of money does offer us opportunities – to clear outstanding debts, such as a mortgage, relieve pressure on our income and allowing a higher degree of security. Saving, or investing, an inherited sum of money could make an enormous difference to our long-term goals, making early retirement more feasible, or rid us of a potential shortfall in our later years.

For some of us, it may be the case that we do not need the funds, and instead would prefer to look at charitable giving, or passing on wealth to younger generations that may be in higher need of financial help. A Deed of Variation, where beneficiaries agree to a change of the Will post death, could allow you the option of redirecting the funds to your children’s financial independence instead.

Divorce

A further unexpected event that is more likely to occur in this stage of our lives is divorce, or the end of a civil partnership.

Divorce is a life event that can have both immediate and long-term financial impact, ranging from short-term worries such as cashflow, your children and your home, to future concerns, such as pension provision and how to navigate later life with a single income.

Dividing assets during divorce and civil partnerships can get messy and complicated. There are a significant number of financial decisions to be made during a painful and tense time – for example, if the family home should be kept or sold, separating bank accounts and dividing up pensions.

Unfortunately, women in the UK are more likely to be negatively impacted financially when it comes to divorce. Women tend to have much lower savings and investments than male counterparts, including pension savings for provision in retirement. This is largely due to women working part-time, or leaving the workplace when children are younger, combined with lower incomes and less opportunity to save, with limited remaining working years in order to build up substantial retirement savings.

On divorce, assets are usually distributed according the financial needs of those involved, however women without appropriate legal advice are especially vulnerable during this process [4].

Pensions are a significant part of splitting assets in divorce, usually being the main source of wealth after the family home. There are usually three approaches to dividing pensions within the divorce process:

  • Offsetting: the value of any proposed pension is offset against other assets, allowing for a fairly clean break. However, other assets may be difficult to value, and may have differing appreciation or growth rates. A pension has the potential to grow significantly over time, in comparison to cash savings, meaning an offset may be not be the fairest way to split assets.
  • Earmarking: earmarking allows an individual without a pension access to income and lump sum payments in future, when the ex-partner comes to take benefits. This also comes with disadvantages, particularly in cases where separation may have been acrimonious, as you must wait until your ex-partner retires and chooses to take an income, or passes away. You do not have control over the investment decisions your ex-partner may make, or when they deem it appropriate to take income – in some cases, they may never. If you remarry, you may also lose your right to a future pension income.
  • Pension Sharing: pension sharing is more common and also offers a ‘clean break’. A court decides the percentage split of a pension fund, and each party is awarded either a pension credit (those receiving the pension split) and a pension debit (those losing pension benefits). With an awarded pension credit, you have the flexibility to decide to stay in the same scheme, or transfer away to a new pension, to select your own investment strategy and to decide when you wish to access the fund. If you ex-partner passes away, or you remarry, this has no effect on your pension.

While pension sharing sounds like the most practical of the three options, choosing an alternative pension can feel overwhelming, adding to the already existing stress of separation and divorce. At Path, we can help recommend products suitable for your needs, and take control over the transfer process, allowing you space to focus on more pressing matters. We’ll help you build a financial and retirement plan that takes into account your investment experience and provide reassurance and support along the way.

Regaining financial control

Quite often, the end of a relationship highlights a previously uneven split in control over finances. With women more likely to work part-time, become stay at home parents or care for elderly family members, day to day financial decision making, such as the household budget, mortgage payments and bills, has been in the sole control of the breadwinning spouse. 

Post-divorce, or after a breakup, you may suddenly find yourself overwhelmed with increased financial responsibility, taking care of household finances that you may never have previously dealt with. Income levels may have dropped significantly, with an entirely new budget to work out and stick to, that may be tighter than your previous lifestyle would allow.

In some cases, it may not be a conscious decision to take a passive role in family finances, and many women have been the victims of financial coercion, a form of domestic abuse and coercive control. Financial coercion can take many forms and can be accompanied by other forms of domestic abuse such as violence, psychological and emotional abuse, and relationship control.

Financial coercion can extend anywhere from controlled spending and restricted access to bank accounts, to removal of names from joint assets, forced loans and credit applications, and restrictions on working or applying for work. Without access to money, the ability to leave becomes impossible.

Leaving a financially controlling partner is an extremely vulnerable and high-risk time for women, further compounded by the potential lack of financial literacy, lack of support and unscrupulous individuals who may take advantage during a traumatic change in your personal circumstances.

There are an increasing number of Financial Abuse training and certification schemes within the UK for financial professionals. At Path, we want to ensure that our financial planning team and wider supporting staff have the option to undertake qualifications to help us recognise financial abuse, and develop the skills needed to ensure the correct course of action and support is provided.

If you are experiencing financial or domestic abuse, or supporting someone who is, you can get help immediately at the following resources:

Women’s health and the impact on finance

A further life change we have to consider during this stage in our lives is our changing health, and how this can negatively impact on our finances.

Menstrual complications, endometriosis and the menopause, breast or ovarian cancer and stress, anxiety and other mental health conditions are some of numerous health concerns that we may have. In particular, they each present barriers to our wellbeing at work, with many women suffering in silence as they do not feel there is sufficient support in the workplace.

Absence of support can lead to more sick days and unpaid leave for women, in turn widening the already large gender pay gap and pensions gap and causing many women to leave the workplace altogether.

The nature of certain female health conditions can have other ramifications, for example, in applying for protection policies to protect our income. Underwriting teams will only usually offer insurance cover for conditions that have been diagnosed, are well-managed or have cleared up completely. Conditions such as endometriosis can take years to diagnose, leaving many women struggling to stay at work, and left with protection policies that refuse to pay benefits until such a time as a formal diagnosis is made.

[1] https://www.adviserhome.co.uk/cd-content/uploads/files/news/ILC%20and%20RL%20The%20Value%20of%20Advice%20%28final%29%20Report%20July%202017.pdf
[2] https://www.sanlam.co.uk/knowledge-hub/insights/whats-your-number/saving-for-an-average-retirement-income#:~:text=In%20reality%2C%20the%20average%20UK,15%2C080%20per%20year%5B2%5D.
[3] https://www.carersuk.org/news-and-campaigns/press-releases/facts-and-figures
[4] https://www.cii.co.uk/media/7461333/risks_in_life_report.pdf

Seeding Change - Time to Thrive