The best laid plans. A Saga guide to planning for the future. Being in the sandwich generation is no picnic. About this guide

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1 The best laid plans JUNE 2015 Being in the sandwich generation is no picnic Common belief has it that those aged have it easy. Growing up at the perfect time to take advantage of free education and soaring house prices, they say, baby boomers are the most financially comfortable generation there is. The reality, as it turns out, is somewhat different. In fact, this generation is becoming known as the sandwich generation : on one hand helping their children (or grandchildren) through university or onto the property ladder. On the other, caring for, and sometimes providing for, their own parents in their old age. The result? The misconception that this age group is the most comfortable financially when they are often anything but. If these problems are not addressed quickly, they could worsen, leading to long-term financial instability from which some people may never recover. But that s not to say they are powerless to act. With proper planning, those in this generation can beat the squeeze, or at least avoid the worst of it. But they need to do so quickly, without delay. The fact is that just 39% of people in their 50s feel prepared for their financial future. Of those, less than one in ten say they are very prepared. About this guide While by no means exhaustive, this guide contains quick and easy-to-digest advice on a range of relevant topics, including Inheritance Tax, care home fees, pensions and the legal documents people ought to have to ensure they provide for their loved ones after death. While the guide is particularly geared towards the sandwich generation, the advice it contains is useful for people of almost any age. P1

2 Part one: The challenges of life in a sandwich Here are some of the biggest challenges facing the sandwich generation: Supporting children and grandchildren The recent recession from which we are slowly recovering has made things really quite difficult for those in young adulthood. Not only did higher education costs increase nine fold from , but house prices in many areas skyrocketed too. This has led to increasing numbers of this generation resorting to the bank of mum and dad to go to university, or plant a precarious toehold on the property ladder. It s also seen the development of the bank of nan and granddad. Supporting parents Britons are living longer than ever, and with that comes a myriad of health and financial issues. A recent Saga survey showed that 14% of those aged are currently caring for their parents, and across the UK, nearly one in ten people are providing for their family financially. Apart from the time and emotional cost of this, the financial costs can escalate rapidly. The prospects of long-term care You might be surprised to learn that the average yearly cost of a care home in the UK is 28,600 for residential alone 38,064 if nursing is required too (Laing and Buisson Care of Older People Market Report, 2013/14). Based on this amount, it s easy to see how quickly even quite a large savings pot could become depleted. While the state does pay for some care home fees, currently this is only when a person s total estate value has fallen below 23,250 (although this figure is set to rise in April 2016). This means that, in many cases, property must be sold to pay for care, and little or no inheritance is left for loved ones. Inheritance Tax Even if people aren t able to help their children financially in life, they usually want them to inherit when they die and sometimes this means Inheritance Tax has to be paid. With property prices soaring in some areas, many estates are worth well over the 325,000 threshold and tens of thousands of pounds can be lost to Inheritance Tax. The prospect of working beyond retirement age Retirement ages are rising, and many people feel they will need to work well beyond the retirement age to make things meet. Research from Saga shows that 14% of people don t expect to be able to retire until they are aged 70-80, with 5% believing they may never be able to. This issue is of course compounded by any support that is given to older or younger relatives. P2

3 Lower than expected pensions Recent cuts have lowered some pensions by considerable amounts. With a lower regular income, many pensioners have felt the pinch, and those taking their pensions in the future are likely to experience the same issue. To find out your likely retirement income, use the Money Advice Service Pension Calculator. Part two: Top tips and tools for planning your financial future Everyone knows that savings and pensions are a way of supporting yourself through retirement, but these aren t the only things you should be looking to do. Consider the following: A Will If part of your financial planning is how funds and assets will be passed on to your loved ones when you die, a Will is absolutely crucial. Without a Will, your estate will be subject to the rules of intestacy and neither you, your spouse nor anyone else will get to decide how your estate is divided; the Government will. As well as meaning that people don t inherit in the way you would want, this can have serious Inheritance Tax implications for people with estates of more than 325,000. But shockingly, a third of over 50s don t have a Will, and many believe that they don t need one or that they are not worth having. Wills need not cost the earth if you agree a fixed price up front, and can be quick and convenient to make. With Saga Legal Services, for example, you can instruct us to write your Will over the phone and complete any paperwork from the comfort of your own home. For more information visit Investments and high interest accounts If you have savings, find out how much interest you are currently making and assess whether your money could be working harder for you elsewhere. Investments, high-interest saving accounts and ISAs (if you are eligible) are a great way to achieve this. Visit Saga Money for more information on Saga s Wealth Management Service. Trusts A Trust is a legal arrangement allowing assets such as property or money to be looked after for the beneficiaries in your Will. These can be used for a variety of purposes including protecting assets for those too young to handle their affairs, passing on money or assets while you are still alive, or ensuring a surviving spouse can remain in a property. For more information setting up a Trust, call Saga on Lasting power of attorney (LPA) An LPA is a legal document in which someone nominates another person to make decisions on their behalf should they lose capacity to do so through illness or major accident. In many ways LPAs are P3

4 just as important as Wills, yet just 11% of Britons have one. There are two types of LPA, one covering finance and property, the other covering health and welfare. Both are incredibly important, and it is worth considering getting both. Without an LPA, even the closest of relatives would find it almost impossible to make fundamental decisions on your behalf and would have to apply to become a deputy an expensive and time-consuming process. For more information on LPAs, download the free Saga guide on page 10. Life insurance If you have children, a partner or anyone else who depends on your income or finances, it is worth looking into life insurance, which will pay out a lump sum on your death. While in some cases the Government may provide support, it is probably a lot less than you would imagine. For the squeezed sandwich generation who may be less cash-rich than they would like, life insurance could be a smart move. To find out more about Saga Life Insurance visit An ISA (for inheritance purposes) As of April 2015, it is possible to pass along an ISA pot to allow a spouse or civil partner to benefit from tax-free returns. This means that widows and widowers can save up to 500 a year on an inheritance of 60,000. This change will only apply to those who pass away from now on those whose loved ones have already died cannot benefit. To ensure your partner receives your ISA, read through your Will(s) to see how this affects your wishes. For example, if you are currently leaving an ISA to your children, you may wish to update your Will so that it goes to your spouse or civil partner. Bear in mind that if the ISA is ultimately given to your children, it will lose its tax-free status. Gen up on pension changes If a person passes away before the age of 75, the retirement income from their annuity can now be passed to a surviving spouse or civil partner tax free. Previously, income tax had to be paid. You should assess how this change might affect the value of your estate, as you may wish to reconsider how you are planning to distribute your cash and assets when you die, perhaps with more cash going to your children/grandchildren. Consider using a deed of variation A deed of variation is a valid way of Inheritance Tax (IHT) planning. One of its primary functions is to stop the possibility of double taxation on the same amount of money. For example, if a person receives an inheritance (having paid IHT) and then leaves it to their children when they die, that gift would be included in the value of their estate and would therefore be taxed again. A deed of variation may help to avoid this. Be warned, however, that deeds of variation used for this purpose may be under review after being mentioned in the 2015 budget, so it is worth keeping an eye on how this situation develops. P4

5 Part three: Inheritance tax planning a short Q&A Q. Who does Inheritance Tax (IHT) affect? A. When you die, if the value of your estate is more than 325,000, you will be liable to pay IHT. However, if you are married or in a civil partnership, this amount can be transferred to your spouse or civil partner upon your death meaning a total amount of 650,000 before IHT is payable. Q. How do I calculate whether I am liable to pay IHT? A. Add up the value of anything you own, including property, investments, savings, possessions and the value of any life insurance policies and pensions. Add on any gifts you have made in the last seven years, and then subtract any debts. If the total is over 325,000, you will be liable for IHT. Q. How many people pay IHT each year? A. Actually only a small percentage, however rising property prices have led to more people being liable than previously. Q. Can I avoid paying IHT? What if I give away money or assets before I die? A. It is not possible to legally avoid paying IHT if you are liable. If you give away assets within seven years of your death, these gifts will still be taxable. This means that it may make sense to start gifting your cash and assets in your 50s or 60s if you are in good health. However, if you give something away but continue to use it, it will still be counted as part of your estate. Property is a key example here if you give a property to a child, but continue to live there it will still be taxable. Q. Can the amount be reduced? A. Yes, but it requires a good deal of planning. For example, you can give away a total of 3,000 each year tax free, plus you can give up to 5,000 to a child, or 2,500 to a grandchild as a wedding gift. In some circumstances, if you have a high income, you can receive an exemption. Charitable donations in your Will can also reduce your IHT bill as anything left to charity is exempt from IHT. As mentioned previously, beneficiaries of a Will can currently use a deed of variation to reduce the amount of IHT paid on some estates that are liable to be taxed twice, although this could be under review. For more information about IHT planning, download the free Saga Guide to Taming Inheritance Tax. P5

6 Part four: Planning property properly options for the sandwich generation Consider rightsizing Rightsizing is simply the act of moving to an appropriately sized property and is particularly relevant for those who are approaching retirement. Moving into a smaller property has a host of practical and financial benefits. Read more in our Guide to Rightsizing. Think about equity release For those who do not want to leave their family home, it may be possible to use equity release to subsidise retirement income, make home improvements, help out children or make renovations enabling them to remain in their home when it would otherwise be unsuitable. The Saga online calculator can help homeowners find out how much equity they might be able to release, but it is vital that professional advice should be sought before making any decision. The pros and cons of buying-to-let The number of private landlords has surged in recent years, with many people in the sandwich generation keen to take advantage of rising house prices. An appreciating asset such as a house can be a great investment that could provide a steady source of income throughout your retirement, although a diversified approach to investment is usually a safer option. It may also mean that you are liable to pay IHT. Bear in mind that any income may be eroded if interest rates increase, that there may be lost income if the property is empty and that letting a property can be a logistical headache. Buying a property for children/grandchildren For those who have the funds, buying a second home and allowing children to live there can be a real help. Many people who do this charge rent, not only out of fairness, but to teach financial responsibility. A second option is simply to give your child/grandchild as much money as possible to help towards a deposit, but bear in mind that there is no guarantee they will be able to get a mortgage. Of course, IHT would be liable on any such gift if you do not live for seven years. Above all, make sure you have the home that makes sense for you For most people, property is the most valuable thing they own, and there are many options for what you do with your home to plan for retirement. If you are currently moving or planning to, find out how to have a smoother move in The Saga Conveyancing Guide. Conveyancing can be one of the trickiest and frustrating parts of moving house, and if it s not done correctly, a proposed sale may fall through. P6

7 The Saga Conveyancing Service can help you buy or sell a property at a competitive fixed price, agreed with you upfront. Saga s fixed fee conveyancing service includes: Unlimited advice, seven days a week. There s no need to book an appointment or leave the comfort of your own home, our friendly advisers are available seven days a week and we will deliver all relevant paperwork to your home. Saga Legal Fee Promise. If your transaction falls through, through no fault of your own, we will reimburse any legal fees paid to date up to 750. Transparent charges. Where additional charges are payable, such as stamp duty and searches, we will always let you know how much they will cost in advance. Dedicated professional conveyancer. We use specialist conveyancers from a top 50 law firm so your case will be given the full attention of a professional, which speeds up the process and reduces the chance of something going wrong. For more information on our conveyancing service or for a fixed fee quote, call us on or visit our website. P7

8 Part five: Top tips for making the most of your pension Do the maths. Frequently calculate your likely pension, compared against your possible future needs and work out whether there is a surplus or a shortfall. Pay in as much as possible, as early as possible. But remember, it s never too late to start. Don t count on a state pension. You will only receive this if you have enough qualifying years of National Insurance contributions. Furthermore, the amount you receive may well not be enough to live on. Save as well. Don t rely entirely on your pension look for other ways to save and invest. Keep an eye on things. Review your annual benefit statement that tells you what you are entitled to. You can then review your options if you think you need to increase or decrease your contributions. The key is not to leave it too late. Think carefully about whether to access your pension pot early. As of 2015, it is now possible for people to access their pension pots once they reach 55. While a lump sum may seem very attractive, it is important that any of this is used judiciously to avoid strife later on. Accessing cash as a lump sum could also have significant tax implications, so this is also something to bear in mind. Consider whether an annuity is right for you. Purchasing an annuity gives you a guaranteed income for life, however, in exchange for the security they provide, some people find that the rate of return is lower than if the sum was invested elsewhere. If you are considering an annuity, it s highly advisable to shop around to ensure you get the best deal, as rates vary considerably. It s worth noting that enhanced rates can be available for those with eligible health issues. Keep an eye on the changes. A great deal has changed for pensions in recent years, from budget cuts affecting state pensions to the new freedoms. It is incredibly worthwhile to keep abreast of developments, to ensure you have the information at hand to make the right decision for you. All too often we ignore our pensions until it s too late don t let it happen to you! For more information, visit P8

9 Part six: Care fees a short Q&A Q. If I need to go into a care home, will the Government pay for me? A. Yes, if the value of your estate is 23,250 or below. If it is above this, you are expected to cover your own care home fees. From April 2016, there will be a care cap that means no-one will spend over 72,000 of their own money on care needs, however, not all elements of your care fees will count towards the cap and in reality you are likely to spend more than 72,000 before you are eligible for funding. Further, the 23,250 will increase to 118,000 for those with a property included in the means test, meaning that less money will be spent on care fees. Q. How much are care home fees? A. It depends on a number of factors, but the average annual fee is 28,500 for residential and 37,500 if nursing care is required. Q. Can I choose which care home I live in? A. Absolutely. Although if you are eligible for local authority funding, but choose somewhere more expensive, you or a third party will probably have to make up the difference. Q. Can I prevent my money being used to pay for care home fees? A. This is a genuine concern and some estimate that more than a million people have had to sell their home to pay for their care. The short answer is that you cannot avoid paying care home fees, although there are some steps you can take. These include: Checking whether you are eligible for means tested local authority funding Checking whether you are eligible for NHS continuing healthcare Using a Trust to ring-fence wealth. Q. My parent might have to go into care; what can I do to help? A. Ensure you have full access to their medical records before and during a care home stay. You will then be able to check on their healthcare needs, as these may affect funding. Make sure you keep on top of the administrative work such as doctors records, and other assessments. Seek professional advice where necessary. Saga, for example, has a Care Funding Advice Service that can help to ensure your parents don t miss out on any local authority funding or state benefits they might be entitled to. They can also talk you through all the options available for meeting their care costs while working to protect their estate. For more information, download our free Care Funding guide. P9

10 Q. How important is lasting power of attorney (LPA)? A. Very. If your parents are at risk of losing mental or physical capacity, a health and welfare LPA is the best way to ensure you have a say in how they are cared for. A financial and property LPA will allow you to access funds needed to pay for them, and to make decisions for them about where they live. Without an LPA, gaining control of even the closest family member s affairs is extremely time-consuming, stressful and expensive. For more information on LPA, visit For more information about care home fees, visit About Saga Legal Services Saga Legal Services provides affordable and accessible legal products for the over 50s at competitive fixed prices, agreed in advance. Saga s team of experts understands the needs of the over 50s, and can offer straightforward, jargon-free advice to make legal issues easier to understand. Saga Legal Services uses experienced and regulated, specialist solicitors as standard, plus lines are open seven days a week. Saga Legal Services products include: Will writing, lasting power of attorney, probate and conveyancing. For more information, call or visit to buy online. Legal services: Homepage - Conveyancing calculator LPA calculator Will writing calculator LPA guide Financial services: Homepage - Money Advice Service calculator Guide to taming inheritance tax Equity release calculator Care funding guide NSW-LG0308 P10