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Spotlight on: Late Financial Bloomers

Adviser Considerations at 45

Maximise Pension contributions

Most of the Late Financial Bloomers group if in employment will have access to a workplace pension. Many clients will want to put in as much as possible, as early as possible to maximise their retirement pot. A simple idea here when it comes to how much to contribute into a pension is to simply take the age your client has started their pension and halve it. Advise putting this % of their pre-tax salary into their pension each year until they retire. For example. if someone starting was aged 32 then they should contribute 16% of their salary for the rest of their working life. While 16% seems a huge commitment, this figure also includes their employer’s contribution - so they only need to fund the rest.



Late savers

Late Financial Bloomers may have children just starting school meaning this will now free up paying the expense of childcare. However, freeing up money to save retirement can often prove harder as there are many things competing for purchases like home improvements, upgrading a car or enjoying a holiday. The key here is to start and be proactive about saving whilst juggling all the big expenses. A simple solution often shared with clients is the 50-30-20 plan. Created by author Elizabeth Warren in the book The Ultimate Lifetime Money Plan.


this is 20% of your take-home pay, and it should be used to invest in yourself (in this case, towards retirement). No matter what, this portion is non-negotiable if you want to retire.


this is 30% of your income, which should be allocated to your discretionary spending. Think anything that’s a “want,” such as a socialising, treats and non-essentials</span


this is 50% which goes towards your essential spending or needs, such as your mortgage, utility bills and groceries.



Investment Bonds

When considering an investment it is important to establish the asset allocation and then, once decided, the tax wrapper used to hold those assets.

Whilst there is no single solution that will suit, many will spread a portfolio across the different tax wrappers; ISAs, OEICs, unit trusts, bond and pension.

One of the key advantages of using an investment bond wrapper is the ability to defer tax. A bond does not generate any personal tax liability on the policyholder until such time as they take any profits from the bond and therefore income and gains can roll-up in the bond. This means that a policyholder will not have any ongoing tax liability or any reporting requirements, and whilst many consider this solely for trustee investments, it can offer valuable benefits to personal investors too.

When profits are taken the policyholder’s tax position at that time is used to calculate any liability. So, for example if the policyholder has spent many years as a higher or additional rate taxpayer but is a basic rate taxpayer when the gains are realised then they could pay a much lower amount of tax and have top slicing and time apportionment to reduce this further.

This deferral of personal taxation can help increase the value of an investment portfolio over the long term.



Estate Planning

For every client it is important to put plans in place during their lifetime to pass on wealth to future generations in the most efficient way.

This often starts with making a will ensuring money passes to future generations however without planning the recipient could be left with a sizeable inheritance tax liability themselves.

Inheritance tax is only one aspect and for many control is just as, if not more, important. Without planning a beneficiary will have full control of the money and could use it in ways that the deceased had not intended.

An effective strategy can help provide control and reduce inheritance tax for current and future generations.

There are different ways of mitigating inheritance tax with the easiest being to give money away, however late financial bloomers may not have as much savings as other demographics so will be hesitant in losing access to their money. They may also receive an inheritance themselves, creating an issue they did not expect to have.

Whilst access and risk will be two important factors for anyone considering estate planning, these two will be even more important to this group as they may not have the wealth others will.



Trust based solutions

The use of trusts is established in UK legislation, dating back to the crusades, and provides the ability for someone to gift money, intended for their chosen beneficiaries, looked after by the trustees until the time that gift is passed to the beneficiaries.

Trust structures have developed to allow the person creating the trust to retain certain benefits. There is generally a trade-off between the tax efficiency of an arrangement against the level of access someone retains:


Discounted gift trust

The client invests money at outset intended to provide fixed regular payments for the rest of their life, effectively providing an income which can be used to supplement retirement income

This means that the client is exchanging part of a lump sum investment for an income, which as they do not gift provides a potential inheritance tax saving from outset. The balance of the investment is a gift, so they need to survive seven years before that gift is fully outside of their estate. As the trustees are obliged to provide these payments they cannot pay any money to a beneficiary until the settlor has died and this can control access until the client’s death.

As the withdrawals are provided using the tax deferred allowance from a bond, the arrangement is not only efficient from an IHT perspective but also for income tax.

Flexible Reversionary trust

This uses a similar concept to a discounted gift trust - again the client gifts money, however rather than retaining the right to an income they retain the right to periodic policy maturities thereby providing flexible payments, to supplement income or used for specific purposes such as health issues later in life. The trustees have the ability to defer those payments if they chose if the money is not required. As the trustees control the maturities they are able to distribute money to the beneficiaries at any time, providing much more flexibility than a discounted gift trust.

This may not be as tax efficient as a discounted gift trust but will suit many who want to make a gift but are unsure about relinquishing full access; not knowing what the future holds.

Gift and loan trust

This is where a client establishes a trust and lends money to the trustees, so unlike the others there is no significant gift involved. The trustees invest the money and the client takes loan repayments, either on a regular basis, again maybe to supplement retirement, or on an ad-hoc basis, again to allow for unforeseen events.

This may not be as IHT-efficient but is a way of stopping the inheritance tax liability getting any worse on part of a portfolio and can provide a valuable level of access.

Investment-based solutions

Whilst gifts have a seven-year clock on them, assets that qualify for business relief only have two-years before they fall outside of the inheritance tax calculation. As no gift is involved the assets will pass to a beneficiary on death, potentially increasing the value of their estate.

In order to qualify for this relief, generally the risk profile of qualifying assets is higher than the client may be comfortable with. On death any assets can impact the entitlement to the residence nil rate band and again the risk profile may not be consistent with the recipient’s risk profile. This can allow inheritance tax issues to cascade and as there is no trust the deceased has no control over who benefits and when, other than through their will.

Life assurance solutions

One of the simplest solutions to an IHT problem does not involve a client gifting money or taking unnecessary risks; a client can use a life assurance policy to provide a lump sum to cover the inheritance tax liability. In the meantime they will have full access to the money they are covering.

The use of a suitable trust can mean that the death benefit will remain outside a beneficiary’s estate, helping to mitigate tax on their estate and provide the trustees with the ability to control who benefit and when.

Adviser Considerations at 65

Pension options

Since the 1970s, the UK has seen an accelerating rise in lifespans. In 1970 a 65-year-old male had a life expectancy of 13 years. By 2007, that had risen to 17.5 years. This means the UK population is gaining around 1.2 years per decade, compared to just 0.1 years per decade from 1849 to 1970.

These trends in increased life expectancy, are translating to longer periods of retirement. Already the state pension age has increased from 65 to 66 years in 2020. It is likely to reach 67 by 2028. This is despite the fact for the average 65-year-old, half of their remaining years will be in ill health.

With longevity comes the need for pensions to maintain their course and live up to expectations. For a 65-year-old retiring today, they could live for 20 more years, meaning their pot needs to be able to stand up to market volatility, drawdown and extra challenges like medical or care fees. Regardless of when individuals retire, advisers will need to ensure clients have enough capital saved up during their younger years that has been invested carefully for them to access in retirement. Sequencing risk – and the danger of mis-timing withdrawals is also a concern that could, if not assessed properly, see pension pots dwindle quickly.

Understanding the implications of taking money out of pension pots is important and clients are not always aware of the many options available and which one suits their needs. Here are the main six options available to clients:

  1. Keep the pension pot where it is

    Your client does not have to start taking money from their pension once they turn 55. They can defer taking benefits until a later date works for them once they have considered their options.

  2. Take the pension pot in one go

    Your clients can take their whole pension pot as a single lump sum, but usually only a quarter of their pension pot will be tax-free. If they choose that option, they will need to plan how the lump sum can provide an income for the rest of their retirement or rely on other sources of income or capital.

  3. Take the pension pot as a number of lump sums

    Your client can withdraw lump sum payments from their pension pot at any time, until the money runs out or they choose another option. The amount they take and how often they take it is entirely up to them. A quarter of each lump sum withdrawal will be tax-free, but you client will pay income tax on the remainder. Any money left in your pension pot will remain invested, so the value of it could grow or decrease over time.

  4. Get a flexible retirement income

    Your client can withdraw regular income from their pension pot. The money left in their pension will remain in an investment fund, so the value of their pension could grow or decrease over time. It is possible to take withdrawals form the tax-free element to minimise tax if, for example, the client has other taxable income. Alternatively, they can take all of their tax-free cash (25%) upfront, but any further withdrawals will be subject to income tax. Your client does not have to take an income if they don’t want to.

  5. Get a guaranteed income for life

    Your client can receive a guaranteed, regular income (also known as an annuity) for the rest of their life. A quarter of their pension pot will be tax-free, but they will pay income tax on the remainder.

  6. Combine pension options

    Depending on their needs, your client can choose to access their retirement savings using a combination of the options above. They can do this over a set period or until they have used their entire pension pot. If they have more than one pension, they can use different options for each pot. Some pension providers can offer a combination of a guaranteed income for life with a flexible income.



Lifetime Annuities

If your client prefers to have a secure, regular income for life then lifetime annuities are a perfect fit. The Lifetime Annuity and Scheme Pension use the money saved in your client’s pension plan to give them a guaranteed regular income for life.

Depending on your client’s circumstances, they can choose to provide an income and/or lump sum after their death to a spouse, partner or other beneficiaries like children.

Lifetime annuities are right for your client if they are aged 55 or over with pension savings held in a UK registered pension scheme. The minimum required is £10,000 after taking any tax-free cash lump sum. Your client can transfer funds from a UK registered pension scheme to buy a Lifetime Annuity. Providers then hold the pension savings until all monies from the transfer(s) are received.

At this point a tax-free cash lump sum of up to 25% of the transferred amount is paid out. If the transfer is coming from a drawdown plan because there is no a tax-free payment as it has been received from an existing pension plan.



Enhanced Annuity

Enhanced annuities work on the assumption that your client’s life expectancy is reduced because of their health and lifestyle choices. Like having a medical condition like cancer or a heart problem, or whether they are a smoker or overweight – it could be a combination of these factors.

Because of this, your client’s income is often higher than what they would receive if they didn’t have medical issues or they had a healthier lifestyle. Your client will have to complete a health questionnaire before they apply to see if they qualify for an enhanced annuity.

A range of options can be selected at outset and can allow the income to continue, even after your lifetime.



Equity Release

At age 65, Late financial bloomers may still be working for at least a few years yet with perhaps a few years left to pay on their mortgage.

Some will be welcoming children back from university and maybe starting to think about living inheritances to help them on the housing ladder earlier than they managed themselves. Equity release has become increasingly popular in recent years, with more choice, value and flexibility than ever before. There are many reasons for this, including societal changes and the continuous evolving needs of homeowners wishing to tap into their property wealth. While many homeowners use the money they release for home improvements, some are using it to boost their retirement income or improve their quality of life. And with its popularity set to continue increasing, particularly given the challenges surrounding COVID-19, we may see more homeowners tapping into their property wealth even more now than ever before.

Equity release gives homeowners greater freedom around how and when they use their wealth, and for many, it could be a really good option to ensure they are using their wealth effectively to fund retirement, while being able to stay in their own homes. There are still many challenges being faced when talking to clients about Equity release, with some misconceptions persisting.

Barriers to Equity release

Despite the fact that Equity release is becoming an increasingly popular option, there are still many barriers for advisers. From changing consumer needs, to the emotional attachment to Forever Homes, or even combatting the negative historic connotations associated with Equity release.

Equity release has been around for decades and despite many changes to the way the product works, not everyone is aware of its many advances.

Homeowners’ main concerns exist around the expense of the product, losing control or ownership of their property or that they won’t be able to leave an inheritance to their loved ones if they take out a lifetime mortgage.

One of the major enhancements to lifetime mortgages has been the rise in flexible plans that give homeowners greater freedom and control over how, and when, they unlock the value in their property, in a way that suits them.

A large proportion of homeowners (77%) have been influenced by the negative stories surrounding Equity release in the press, while over half (59%) lack awareness of the product and its many developments over the years. There is also an expense element to some of the challenges with over half (54%) of homeowners perceiving it as a costly product.



Lifetime Mortgages

A lifetime mortgage could form part of the solution for a client who wants to stay in their forever home and use the wealth they’ve accumulated from it to support the retirement they’ve worked long and hard for.

Lifetime mortgages are a type of equity release that releases tax-free cash from your client’s property value. Your client will get a long-term loan that’s designed to last for the rest of their life, giving them complete peace of mind.

Lifetime mortgages are a type of equity release that releases tax-free cash from your client’s property value. Your client will get a long-term loan that’s designed to last for the rest of their life, giving them complete peace of mind.


Considerations at 85

Passing on wealth

For most people, the emotional reward of seeing their loved ones enjoy the fruits of their lifetime of work is the biggest reason to gift earlier. However, there can be the more practical benefits of giving while your client is still alive:

  • Potential to save on taxes and fees.

  • Simplifying or reducing the size of their future estate – it may help to lessen or eliminate the burden of managing assets by others later (especially with real estate or other investments)

  • Giving the next generation an early inheritance to start a business or to invest now (and grow the size of their gift in the future).

  • Potential for avoiding estate administration taxes (also known as probate) and ensuring their privacy.

  • Reduce the potential for family conflict over their estate after they have gone.

Find out more about Inheritance Tax and key points to consider » Here



Care home costs

Another concern for these clients is how to protect wealth when self- funding in the event of having to move to a care home in the future. Downsizing can help your client free up money to pay for care as can equity release and cashing in investment bonds.

Investment bonds can also help with trust and estate planning. Any withdrawals are paid to the policy owner. So if the bond is assigned to a new owner, they can take withdrawals and make use of any unused 5% allowance to defer the tax payable.



Mental health and the role of financial advisers

As clients reach 75 their mental health can start to deteriorate with 15% indicating signs of depression or anxiety. With growing awareness and increasing openness surrounding mental ill health in UK society, how should financial advisers adapt and help? 3

Talking about mental health issues for some clients may be difficult so keep discussions to only what is absolutely necessary for the purposes of the financial discussion. For some financial products, such as forms of protection, insurance, and equity release, full disclosure of all health conditions, past and present is important but the client is very likely to be worried that exposing even a short period of mental ill health will mean they will be turned down for insurance, have an exclusion imposed or pay a much higher premium. Here are 3 areas to consider that will really help if your client has poor mental health:

  1. Listen without judgement

    The sensitive nature of conversations around mental illness should not be underestimated as well as the fact that everyone copes differently. Through active listening, demonstration of empathy and reassurance an adviser helps protect their client who may be feeling vulnerable or uncomfortable.

  2. Find suitable protection

    Careful research of suitable products catering for people with mental health conditions and providing suitable information to enable the client to make an informed choice can go a long way to ensure that money worries can be avoided.

  3. Signpost for support

    Many Protection and Critical Illness policies include support services such as access to counselling, online GPs and mental health nurse support, advisers can play a key role in ensuring these services are understood, so they can be utilised when needed.

Find out more about Canada Life Critical Illness Cover and Individual Protection that include access to support services such as online GPs and mental health support.



Vulnerable clients

Personal relationships will always be a vital part of the advice process. A strong personal relationship is a key cornerstone of a good service and will be for as long as the profession exists.

Throughout the pandemic, easing the weight of clients’ financial stresses has been crucial when many felt profound uncertainty and vulnerability in all areas of their lives. The value of advisers who have close relationships with their clients is now greater than ever.

Adviser tools

These online tools are free to use and designed to enhance client engagement 

Divorce and money calculator

This calculator provides an idea of a financial situation before a potential divorce settlement.  It also helps work out what a client has, what they owe and how they might split assets and finances.

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Life expectancy calculator

A useful tool t help find out your clients average life expectancy, so that you can help plan their future and retirement option.

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The budget planner

This online tool looks at your income and outgoings to help your clients understand and manage their budget.

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CPD Reflection Statement

To obtain your CPD learning you will need to complete a reflection statement and save a copy as evidence of your CPD learning.

Download the CPD reflection statement.