Charting a course to financial security

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With the new year beckoning, Jacquetta Straker, financial planning expert with Lycetts Financial Services, considers how women can take greater control of their finances to better protect their futures.

Expect the unexpected

With 2022 just beginning, it is an opportune time to review finances, plan for the future and take steps to manage your money in the most economically effective way.

Naturally, Christmas and a new year encourages optimism, but it is sensible to be prepared for what fate could throw at you. When times are good, there is a reluctance to consider potential worst-case scenarios.

Everyone has mortgage protection, for example, but income protection is often overlooked. It is vital that critical illness cover is in place to guard against the ‘what ifs’ of life. Serious illness is traumatic in itself, but it is magnified if you then have to cope with the financial implications of having to stop work, either temporarily or permanently. A one-off, tax- free payment will help pay for treatments, mortgages, rents and any necessary adaptations to the home, such as wheelchair accessibility.

An emergency fund is equally vital, as the Covid-19 pandemic so recently proved when many found themselves having to access – and sometimes empty – their funds. The ramifications of being unable to make a repayment can snowball rapidly. Faced with such a possibility, it is recommended that you set aside enough money to cover at least three months of expenditure. This will afford you valuable breathing space to make new arrangements.

Make your money work for you

When it comes to investing, everyone will have their own attitude towards risk, which will typically be linked, intrinsically, to their demographic, personal circumstances and personality.

If you’re looking for low-risk investments then the highs won’t be as high, but the lows won’t be as low. There is a degree more certainty but there is no guarantee. The main question to ask yourself is do you want your money just sitting in an account earning zero interest for another year when it could be working hard for you? This is particularly relevant as inflation continues to increase and cash is effectively being eroded in value.

Mindsets towards social and environmental impact are evolving year-on-year and if one of your resolutions is to make a positive contribution to the world around us, then ESG (Environmental, Social, and Governance) investments can be a compelling option.

Some assume that ethical investments do not yield as good a financial return and that investing for the greater good brings an element of financial self-sacrifice, but that is not necessarily the case. ESG investments are performing well and the more successful companies have already embraced ESG as part of their corporate cultures.

For the more tentative or less experienced investor, pound cost averaging can offer a good introduction to stocks and shares.  This strategy involves making regular, smaller investment contributions over a period of time, rather than investing one larger lump sum at the outset.

The rationale is that in volatile equity markets, where the value of investments can fluctuate considerably in the short term, ‘drip-feeding’ your cash offers a level of protection if the market falls shortly after you have invested.

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The future is now

A pension still remains the most tax efficient option for securing financial well-being. Adding to your pension whenever possible should be a priority as it increases the likelihood of achieving the retirement you desire, and you could receive tax relief on your additional contributions.

With the state pension currently providing an annual income of £9,339, adding one or multiple personal pension schemes has become an attractive and popular proposition. Selecting the appropriate personal pension can be confusing and it is advisable to seek advice from a financial adviser. Too often, those attempting to navigate the market alone are swayed by cost rather than performance.

The discrepancy in pension amounts between genders is something that you do not want to fall victim to in retirement. Recent figures reveal men, who have not yet retired, already have an average of £62,336 in their pension pot compared to women who average just £22,735. This has been partly attributed to married women who may, at some point in their career, reduce their working hours or take time out to care for young children, for example. During such periods, husbands should consider making contributions to their wives’ pensions to ensure pension parity in retirement which will enable them to spread the income across both of their income tax bands, potentially resulting in less income tax being paid.

When you receive child benefits you also receive National Insurance credits towards your state pension. If you don’t claim the child benefit then you may not be receiving these National Insurance credits which could result in a lower state pension entitlement and this is something that a lot of women don’t realise. In a scenario where the husband is earning a salary above the child benefit entitlement threshold, and the wife is working fewer hours, it might seem pointless to claim the benefit as the level of taxation on it could leave you no better off.  But failing to do so can mean that your pension entitlement will suffer.

Married women should ultimately look to ensure they are involved in all financial planning decisions, rather than simply relying on the assets – including pension – of their spouse.

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