Five things every lawyer should be asking their financial consultant right now
Ian Biddle & Richard Olive, Midlands based senior financial consultants at Wesleyan, the specialist financial services mutual for lawyers, answer the five questions that everyone should be asking.
The ongoing coronavirus pandemic is having an impact on all parts of life, and personal finances are no exception.
Whether it’s investments, pensions, insurance or savings, it’s important that individuals are best prepared to manage the impact of the outbreak and here are answers to the five questions that everyone should be asking when discussing their finances.
What about protection cover?
The possibility of disruption to your day-to-day life from coronavirus underlines the importance of protection cover to help mitigate the financial impact of any sort of illness or injury.
If you haven’t already done so, a good first step is to review what cover you have in place, and whether this is the right level for your current needs, personally and professionally – this includes understanding and checking if existing company benefits apply to you.
Options could include solutions such as a professional expenses plan to help cover any costs in a business that you’re responsible for, or to help meet the costs of hiring someone else to carry out work, if you are unable to.
It is critical that individuals ensure that they understand exactly what their policies covers should they need to claim. Your financial consultant can help with this process.
What does coronavirus mean for my investments?
Coronavirus has had a global impact, and there isn’t anyone that hasn’t felt the effect of the pandemic on their investments in one form or another.
Everyone’s specific circumstances will vary, however, in the current conditions it’s generally accepted that investments are best left untouched, if you can afford to do so.
While no one can say with any certainty how long it will take for global markets to recover, leaving investments in place could give them a chance to regain any value they’ve lost when markets improve. As with any investment activity, it’s important to remember that the value could go down as well as up, and that you may get out less than you put in.
On the other hand, current market conditions could also present new opportunities if you have capital to spare.
With the right strategy, this could be a good time to invest. Consider first how current market conditions align with your appetite for risk and remember that investing is generally carried out over the long term – at least a period of five years.
Whether you’re considering accessing capital tied-up in the market, or thinking about making new investments, talk to your financial consultant before making any big decisions.
What does it mean for my pension? I’m over 55, should I access it now?
Coronavirus could have pension implications – particularly for those in a defined contribution (DC) scheme, where the value of their pension pot is driven by the performance of its underlying investments.
In times like these, some people may be feeling under financial pressure, and – if they’re eligible to do so – might be considering drawing down pension funds to support their personal cashflow.
However, it’s important to consider the longer-term implications that this could have.
Given current market performance, withdrawing funds now could mean getting less out than six months ago and potentially less than what you might receive in six months to come.
Starting to access pension savings from a DC scheme now could also have implications on the amount that can saved tax-free into your pension scheme in the future.
Certain flexible drawdown situations, such as putting a pension pot into a flexi-access drawdown scheme, can trigger the Money Purchase Annual Allowance (MPAA) – a measure that reduces the amount that can be saved tax-free into a pension pot every year from £40,000 to just £4,000.
Those considering accessing pension funds now but hoping to rebuild, or continue building, pension savings in the future will need to keep this in mind – any contributions they make that exceed the MPAA will be taxed at their marginal rate of income tax.
As with decisions about general investments, take time to speak to your financial consultant to ensure you fully understand what any pension decisions could mean further down the line.
What should I do about my savings?
In the current climate, some people may need to access savings to help meet day-to-day costs.
As a first step, it’s important to consider factors such as where savings are held, as well as what proportion of money is immediately at hand, and what proportion is tied-up in investments.
If you think you might need to use your savings, consider exactly how much you will need, and then work to redirect some funds into instant-access savings accounts if necessary so you can access the money quickly and easily when required
With interest rates at historic lows, it’s advisable that funds are only kept in low-interest accounts to provide for emergency or planned expenditure over the short term – any longer and the value of money could depreciate in real terms.
What else should I be doing to support my finances?
Investigating the wider support on offer to help manage your finances could also be valuable if you experience personal financial pressure in at the present time.
One option is to consider seeking a ‘mortgage payment holiday’ – a temporary suspension or reduction of repayments on mortgages.
The Chancellor has announced that all lenders will offer mortgage payment holidays for up to three months to those affected by coronavirus.
While individuals will need to remember they will still be liable for any payments they defer, the temporary break could free-up cash during this uncertain time to help meet other day-to-day expenses.
For any financial-related questions you might have during the coronavirus outbreak, it’s important to seek specialist advice.
Should you need any further information visit www.wesleyan.co.uk or call 0800 980 2277