1. On the death of either spouse, the remaining spouse has access to a net income of £35,000 per annum in today’s terms for the rest of their lives.

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Contents

1.     Introduction...................................................................................................................... 3

2.     Objectives & Priorities..................................................................................................... 4

3.     Assumptions...................................................................................................................... 5

4.     Attitudes to Risk............................................................................................................... 9

5.     Assets & Liabilities.......................................................................................................... 10

6.     Taxation........................................................................................................................... 11

7.     Income & Expenditure Analysis..................................................................................... 12

8.     Financial Management................................................................................................... 13

9.     Personal Risk Management & Insurance...................................................................... 14

10.       Education Planning for Children............................................................................... 15

11.       Retirement Planning.................................................................................................. 16

12.       Other Issues to be Addresses..................................................................................... 17

13.       Plan Implementation and Reviews........................................................................... 18

14.       Action Plan.................................................................................................................. 19

APPENDICIES........................................................................................................................... 20

A.     Further Details on the Assumptions............................................................................. 20

B.     Net Worth Statements.................................................................................................. 21

C.     Income & Expenditure Statement................................................................................ 22

D.     Income Tax Calculations................................................................................................ 23

E.     Capital Gains Tax Calculations....................................................................................... 24

F.     Inheritance Tax Calculations......................................................................................... 25

G.     School Fees & University Costs Funding....................................................................... 26

 

 

1.    Introduction

 

Your personalised financial plan has been divided into separate sections as shown on the contents page on the proceeding page. The reports main purpose is to analyse your personal circumstances and the issues you have raised to arrive at suitable solutions for your long term financial goals and objectives. Each section deals with a separate area of your financial plan and includes an analysis of the current situation and recommendations of how to proceed going forward. An overall summary of my recommendations and our action plan is included at the end of the report. The report is based on the information you have provided to me at our recent meetings and a copy of this information and the interview notes are included in the appendices for your records. If your circumstances and/or objectives are different or have changed since, please advise me immediately. This report is based on my understanding of current legislation and is for the tax year 2016/17.

 

It is important to remember that Financial Planning is an art and not an exact science due to the number of variables that can apply to any given situation. I have made recommendations which are based on assumptions as outlined in this report such as interest rates, inflation and rates of return on investment. I have set out my reasons for these assumptions which I have used. These assumptions should be reviewed at the annual review. This report is a snapshot of your current financial position, once we have agreed on appropriate actions going forward, the report and findings should be reviewed regularly on at least an annual basis. This will ensure that changes in your circumstances along with external factors including investment returns, economic factors and (tax) legislation are acted upon. For ease of reading full calculations have been included in the appendices.

 

 

2.    Objectives & Priorities

 

You have advised that your aspirations, objectives, needs and concerns in priority order are:

  1. On the death of either spouse, the remaining spouse has access to a net income of £35,000 per annum in today’s terms for the rest of their lives.
  2. On disability or illness of either spouse to have £35,000 of net income per annum in today’s terms for the rest of their lives.
  3. Tom wants to sell the portfolio of properties for £510,000 during the next 3 or 4 months. Tom will use £200,000 of the proceeds to purchase a holiday home in Devon as joint tenants with Tara.

2.   To fund school fees for Eloise from September 2023 to July 2028 and David from September 2025 to July 2030, at a cost of £14,400 per annum each in today’s terms.

2.   To fund university costs for Eloise from September 2028 to July 2031 and David from September 2030 to July 2033, at a cost of £13,000 per annum each in today’s terms. However, should either, or both, children decide not to go to university, you want the funds earmarked to help the children get on the housing ladder.

3.   Tom to be financially independent from the age of 50, so he can develop the micro-brewery. Tom and Tara to have joint net income of £35,000 in today’s terms once they start the micro-brewery for the rest of their lives. Tom needs £30,000 in today’s terms to fund the cost of setting-up the micro-brewery.

 

This report will focus on these key objectives. It is, however, important that we address other areas in detail in our next meeting such as estate planning which you have stated you wished to be looked at in the future once the above objectives been planned.

 

  1.  

3.    Assumptions

In producing your financial plan and the recommended solutions to your objectives herein I have to make certain assumptions. Your financial plans are based over the long term and I have been required to make assumptions about future economic conditions, investment performance/returns and your future financial situation. I have detailed my assumptions below and provided explanations for my figures:

 

Inflation (Retail Price Index (RPI))                  3% Per annum

Annual Increase in Earnings                           2.8% Per annum

Deposit Interest                                              2% Per annum

Equity based investment growth                    x% Per annum

Property                                                          x% Per annum

Fixed Interest investment growth                   x% Per annum

Annuity rates (escalating at PRI)                    x% Per annum

School Fees Costs                                            4.5% Per annum

University Costs                                              x% Per annum

 

General Assumptions

 

  • Your future circumstances will not change unless stated.
  • Your future expenditure will increase in line with inflation.
  • Future rates of taxation will remain at current levels.
  • Your personal allowances will increase in line with inflation.
  • State Benefits will remain at current levels, in line with inflation.
  • Future legislation regarding tax relief on pensions, taxation of income and capital gains tax will not change.
  • Retirement pension income will be secured by means of a conventional annuity using current Open Market Conditions.
  • Full state pension benefits will be payable at age 68 for both Tom and Tara – source gov.uk state pension age calculator.
  • You are both in good health and I have assumed you will remain so and health insurance recommended assumes you qualify for cover at standard rates.
  • You will continue a normal healthy lifestyle until your death which with continued increasing life expectancy could be up to 100 years of age.

 

Reasons for Assumptions

 

Inflation: The government’s current measure for inflation is the CPI (Consumer Price Index). Previously the government used the RPI (Retail Price Index). CPI is an internationally recognised measure and is used throughout Europe. The most practical way to think about both the CPI and RPI is to imagine a “shopping basket” containing all the goods and services a household uses and spends their money on. The CPI and PRI measure the change in price of this “shopping basket” from one time period to the next. A primary economic objective of the current government is to keep inflation under control, and to do this it delegates the main responsibility to the Bank of England to carry this out. The current aim of the bank’s Monetary Policy Committee is to keep inflation close to the 2% target going toward.

 

I have used RPI as the assumed inflation rate in this report due to the fact we have access to more historical data and can use this data to measure trends. The main difference between CPI and RPI is that, RPI also includes mortgage interest rates where CPI does not. As a result RPI is higher than CPI. Currently RPI is 2% while CPI is 1%. Over the last 10 years RPI has also averaged 3% as sourced via the Office of National Statistics. As you currently have a mortgage I consider this index more appropriate to your circumstances. I have assumed an average approach to your financial plan for inflation of 3% going forward. It will be essential to monitor this at future annual reviews and adjust the rate as necessary.

 

Increase in Earnings: The Office of National Statistic reveals an increase in average earnings of 2.1% in the year to September 2016 (latest figures). Traditionally average earnings have consistently grown at a rate higher than inflation. The average growth over the last 10 years has been 2.8%. I have used this figure going forward in the financial plan. This period has been low due to the continued global economic conditions compared to historic growth rates. Future job changes or promotions could mean that your earnings increase higher than the assumed rate. It is important these rates are analysed at future reviews.

 

Investment Returns

 

Deposit Interest: I have assumed a nominal interest rate return of 2% for investments held in deposit (cash) investments. The current base rate is 0.25%, which is unusually low and reflects the unique economic situation we are currently enduring. There are various deposit accounts available with various conditions attached. I have assumed this rate when looking at those investments available on the market and the fact your currently held deposit accounts are paying both 1.5% and 2.5%.

 

Fixed Interest: The Barclays Equity Gilt Study 2016 reveals historical average annual return of x% over inflation over the past 20 years for typical fixed interest investments (gilts). For the purposes of this financial plan and taking a conservative approach I have assumed a return of x% over inflation for fixed interest investments returns taking into account RPI inflation at 3%.

 

Equities: An average return of x% nominal has been assumed for equity returns. The Barclays Gilt Study previously mentioned states that equities outperform both deposit and fixed interest investments over the long term. The past 20 years has seen average annual real returns of x% real. The past 10 years has seen a more modest return on equities due to the financial crash. Considering the long term aspect of equity investment, I have assumed an annual return of x% above inflation for this financial planning report.

 

Property: The Investment Property Databank study reveals pooled property funds have delivered an above average return of x% over the last 20 years. This return relates to investments in pooled property investments such as unit trusts and OEICs. I have assumed a rates of x% above inflation for the purposes of this financial planning report.

 

Annuity Rates: Insert

 

School Fees Costs: I have researched the increase in school fees via the Independent School Council 2016 Census data. The study reveals that school fees are increasing at a higher rate than price inflation at a rate of 3.5%. Although the fees have consistently been falling from 5.9% in 2007 to 3.5% in 2016 with an average of 4.5% over the last 10 years. Conservatively I will use the assumption that school fees inflation will continue with the average of 4.5% for this financial plan.

 

University Costs: Insert

 

 

4.    Attitudes to Risk

The recommendations I make throughout this plan will take into account your attitudes to certain investments as detailed at our meetings and in the confidential financial questionnaire. An accurate assessment of your attitude to risk is crucial as it forms the basis of my recommendations which are suitable for you. If you do not agree with my assessment you must inform me as soon as possible. The important principle of risk is that it is related to the level of expected reward.

 

Mortality and Morbidity Risk – financial loss in the event of death and disability

 

  • You are very concerned about the risk of financial loss on death to the survivor or beneficiaries.
  • You are very concerned about the risk of financial loss in the event of serious illness and/or disability.
  • You are very concerned about the risk of financial loss in the event of medium to longer-term sickness.

 

Investment Risk

You indicated that you do not have strong feelings regarding particular investments. Your attitude to investment risk is the level of risk you are prepared to accept in return for growth from your investments. As risk is linked to reward, usually the level of risk you are prepared to take will strongly influence the amount of investment growth you will receive as a result. You have indicated the following attitudes to investment risk:

Rick Attitude

Retirement

Long Term

Investment

(15+ years)

Medium Term

Investment

(5-15 years)

Short Term

Savings

(0-5 years)

No Risk to Capital

 

 

 

 

Low Risk

 

 

 

Tom & Tara

Modest Risk

Tara

Tom & Tara

Tom & Tara

 

Relatively Higher Risk

Tom

 

 

 

High Risk

 

 

 

 

 

 

 

5.    Assets & Liabilities

Text

 

 

6.    Taxation

Text

 

 

7.    Income & Expenditure Analysis

Text

 

 

8.    Financial Management

I recommend that Tom’s credit card is paid off in full (£3,000) due to the high rate of interest at 18.7%. You have sufficient funds in your deposit accounts which is higher than the recommend contingency fund. Therefore, I recommend you use £3,000 from Tom’s building society deposits to clear this debt. This should be done before moving the remaining balance into Tara’s accounts.

 

 

9.    Personal Risk Management & Insurance

Objectives

You are very concerned that you currently would be unable to continue your current lifestyle if one of you were to die, develop a serious illness/disability or suffer medium to long-term sickness. In each situation we established you would require a replacement income of £35,000 net per year. I have analysed this amount and quantified using existing provision, potential state benefits and extra expenditure required.

 

Existing provision

 

State Provision

I have assumed that you both have paid full National Insurance contributions and will continue to do so giving you full entitlement to state benefits.

 

If either of you were to die you would be entitled to claim Widowed Parent’s Allowance of £5,852.60 before tax per annum until David reaches 19 years of age assuming he remains in approved education or training, and you are eligible for Child Benefit. The benefit is taxable on the surviving spouses marginal tax rate. You would also be entitled to one-off Bereavement Payment of £2,000 paid tax free to assist with funeral expenses.

 

The surviving spouse would be entitled to continue receiving Child Benefit of up to £1,788.80 per annum until Eloise is 19 years of age. You would then continue to receive the reduced Child Benefit amount of £1076.40 per annum until David reaches age 19. Assuming they both remain in approved education or training after age 16.

 

If Tom is unable to work you would not be entitled to claim Statutory Sick Pay as your employer (Speedwheels) would pay you full salary for the 1st 3 months and half salary for a further 6 months. This is above the current Statutory Sick Pay rate of £88.45 per week. You are ineligible for Employment and Support Allowance due to your savings.

 

Tom and Tara would both be eligible to apply for Personal Independent Payments to assist with extra costs caused by long-term ill-health or disability before they turn 65. Payments are from £21.80 to £139.75 per week tax-free depending on how the condition affects you. If one spouse is eligible for PIP and the other spouse cares for them for more than 35 hours a week they are eligible to claim Carers Allowance of £62.10 per week which is taxable. For the purposes of this financial plan I have excluded these benefits from calculations as they are dependent on the severity of illness and/or disability.

 

Budget

You have a joint disposable surplus budget of £x per annum or £x per month from which any future planning provision can be funded along with your other financial planning goals.

Timescale

 

Attitude to Investment Risk

 

Life assurance – Tom

 

Recommendation

 

Life assurance – Tara

 

Recommendation

 

Illness/Disability Cover – Tom

 

Recommendation

 

Illness/Disability Cover – Tara

 

Recommendation

 

Critical Illness Cover for the Mortgage on your Main Residence

 

Recommendation

 

Medical Underwriting

The quoted insurance premiums for critical illness cover and permanent health insurance assume you are both in good health and have no history of significant illness or medical conditions. You have stated previously that this is the case on the confidential questionnaire. On application for any of these policies the insurance company will underwrite the information provided on the application form. The insurer may request further information from your doctor or ask you to attend a medical examination. This could result in the quoted premiums being increased or reduced in cover or even declined. Omissions or errors on applications can result in policies being voided, please ensure that information is accurate.

 

 

10.                       Education Planning for Children

Text

 

 

11.                       Retirement Planning

Text

 

 

12.                       Other Issues to be Addresses

For the purpose of this report and in accordance with your instructions I have only addressed in detail those financial planning aspects relating to education planning for Eloise and David, Personal Risk Management and Insurance, and Personal Retirement Planning. You should also consider the following additional areas of financial planning which may be discussed at out next meeting.

 

Estate Planning: You should ensure your wills are up to date to reflect the disposal of the property portfolio, the purchase of the new holiday home and are a reflection of your wishes in the event of your death. Also to minimise the impact of inheritance tax on your estate following Toms experience with the property portfolio.

 

Long Term Care: You have indicated this is not a concern for you at present. However, you should consider the potential consequences of not being able to afford care in your old age.

 

Taxation and National Insurance: I have included a detailed analysis of your individual taxation and National Insurance liability in the appendices. In combination with your investment and retirement planning, there may be possibilities to reduce your individual taxation and National Insurances liability.

 

 

13.                       Plan Implementation and Reviews

Plan Implementation

It is essential to implement this financial plan as soon as possible to achieve the projected returns in this report. I will contact you in one week once you have had time to digest the contents of this report to arrange a further meeting to discuss its contents and the nest stage. If you require any further assistance with regard to carrying out the various actions allocated to you, please do not hesitate to contact me and I will be pleased to assist.

 

Reviews

It is important that we regularly review your plan to ensure it remains and amend it when necessary. Reviews will take into account changes in your circumstances and/or objectives. Also any changes to legislation or taxation and to revise assumptions made in this report. I would advise an annual review, which will involve a meeting and allow this financial plan to be updated. However, I would recommend an additional review when the sale of the property portfolio is completed in 3-4 months’ time. We can then confirm that you are pleased with the way things are progressing and to consider the investment strategy for the proceeds of the sale.

 

It is important that you contact me if there are any material changes in your circumstances or your objectives which may have an impact on your financial planning to permit us to review this.

 

I will contact you within 1 month of the 12-month anniversary to arrange a review meeting. In order for this to be a successful review I will send you an updated confidential questionnaire again to complete to prepare for the annual review meeting.

 

 

14.                       Action Plan

An action plan of the recommended actions with costs, timescales and who is responsible:

 

Action

Who

Timescale

Organise implementation meeting within 1 week of this report.

Planner

1 week

Pay off Tom’s £3,000 debt on credit card with money from Tom’s ‘building society deposits’.

Tom

Within 2 weeks

Check there is no notice period required regarding the re-allocation of cash deposits.

Tom and Tara

Within 2 weeks

Tom to transfer funds left in his bank account and building society account into Tara’s respective accounts.

Tom

Within 2 weeks

Permanent Health Insurance

 

 

Critical Illness Insurance

 

 

Life Insurance

 

 

Pension contributions

 

 

Micro-brewery

 

 

Educational costs

 

 

Lasting Powers of Attorney?

 

 

Proceeds from property portfolio

 

 

 

 

 

Planner to contact you 1 month before the annual review to ask you to advise of any changes to your circumstances and confirm date of annual review.

Planner

September 2017

Annual review to take place

Planner

November 2017

 

 

 

APPENDICIES

A.    Further Details on the Assumptions

Text

 

 

B.    Net Worth Statements

 

 

 

C.    Income & Expenditure Statement

Text

 

 

D.   Income Tax Calculations

Text

 

 

E.     Capital Gains Tax Calculations

Text

 

 

F.     Inheritance Tax Calculations

Text

 

 

G.   School Fees & University Costs Funding

Text

 

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