Issues and possible solutions
The days of the extended family are set to make a comeback, as pension under-funding, the spiralling cost of residential care and pressures facing first time buyers create a need for three generations to pool their resources and live under the same roof. Findings from our latest research predict that the number of these ‘extended financial families' will treble over the next 20 years, to around 200,000.
But there are steps you can take to plan ahead to ease these pressures, or even to help you make the most of your finances if you're already in this situation:
Help for planning for retirement
- Anyone can contribute up to £3,600 tax free into another person’s stakeholder pension arrangements up to the age of 75. This effectively helps build up their pension fund in preparation for retirement or increases their income if they have retired. Tax relief is given on contributions, effectively reducing the actual amount paid in by 22%.
- It is possible to use the equity in a property that may have built up over the years, sell the existing home, and buy a smaller, cheaper home. This releases some of the capital, which can then be invested or used to boost income in retirement.
- One consideration is an equity release scheme, which effectively enables people to access some of the equity in their property and continue to live there. The money could then assist with expenditure and lifestyle requirements in their final years.
- A complete review of all investment and tax arrangements can ensure people are receiving the best and most up-to-date returns they can by using all their tax allowances, and may also lead to a restructure of their savings to invest for an improved income for the future.
- Save in the most tax efficient way for growth, ie using cash and equity ISAs to build up a lump sum that may assist the financial position in future.
- It is possible to pay for the premiums of an insurance policy that would pay a lump sum or an income in the event of someone needing healthcare or long term care later in life. This can eliminate the need to rely solely on state support.
Help for moving on
- Free up some capital to help with the deposit on a child’s home, if you have built up sufficient equity in your own property.
- It is possible to act as a ‘guarantor’ for a borrower, to give the lender the security necessary to make the loan. Guarantor mortgages can be offered to young aspiring professionals if it is likely they would one day be able to meet the repayments themselves.
- There are some benefits to giving children their inheritance early as this avoids losing money to capital gains tax and inheritance tax further down the line.
- Consider buying a property to let, possibly to your children, with proper tenancy agreements, as a form of investment.
- Extending a home to form a separate flat for family members to live in can keep resources pooled but still maintain independence.
- A regular savings account can be the first step to saving for a deposit, as a little money put aside each month can soon build up.
- Ensure that any debts are not being charged at unnecessarily high rates of interest and consider changing provider if this is the case.
There are many ways to tackle financial pressures, but what is for certain is that a visit to an independent financial adviser is crucial to help ensure all of these issues can be addressed and considered properly. Skipton Financial Services Limited specialises in providing financial advice and this service is available free at any of Skipton Building Society's 80 branches across the UK .