Its good to talk

Don’t leave tricky money confersations hanging in the air this New Year

The Family Financial Tree report from Standard Life looked at the family money tree over four generations and makes some surprising findings. It reveals how families collectively manage and have talked about their personal finances.

The findings, based on survey data of over 4,000 adults in Great Britain, draw compelling conclusions about what is effectively one of the last taboo subjects for families – the uncomfortable discussions around money, inheritance and retirement.

How money flowed across four generations

The research tracked how money flowed across four generations of a family and also established how this flow of cash is reliant on families having some tricky conversations. The report also finds that many of us remain typically British and private about our finances. While we might involve our spouse or partner in discussions and future planning, few people say they communicate freely with others in their family about their finances.

Family financial plans involve all the generations

More than a third of parents (35%) and two fifths (43%) of grandparents would not ask anyone within their family for advice about finances. And despite evidence that a large volume of money is moving freely between generations, only one in four (25%) people say that their family financial plans involve all the generations. However, the attitude of new parents is very different. Almost four in five parents (79%) with children under the age of five would ask the family for money (79%) and three quarters (75%) would ask the family for financial advice.

Three distinct types of families

The research has identified three distinct types of families: ‘talkers’ and ‘gifters’, who are likely to benefit from discussing the family money tree, and ‘avoiders’, who are failing to release the power of the family financial tree.

Which type of family are you?

‘Talker families’ are the 25% of the population who involve all of the generations when planning family finances – they are likely to be open with each other, discussing salaries, upcoming bills and even inheritance.

‘Gifter families’ are families who gift money between the generations to help with both big and small purchases, whether it be a mum paying for Gran’s supermarket shopping or a granddad contributing to his granddaughter’s education. ‘Gifters’ are also likely to be ‘talkers’.

‘Avoider families’ however are the least likely to benefit from the family financial tree, as they avoid money chat in their household, particularly the more difficult conversations. This means they could be missing out on the combined strength of planning for the future together and could be making decisions based on little information about future commitments or needs.

The research is based on survey data. 4,071 UK adults were surveyed by YouGov on behalf of Standard Life between 4th and 7th October 2013, weighted to nationally representative criteria. Of the base sample, 1,633 (unweighted) parents, who were not also grandparents, were asked a series of specific questions based on their status. In addition, of the base sample, 885 (unweighted) grandparents were asked a series of specific questions based on their status. The survey was conducted online.

Navigating a shifting landscape

Recent years have brought tremendous change around the globe, change that affects us all. People are trying to navigate this shifting landscape, but it’s not easy.

In the first Investor Pulse survey conducted by BlackRock, half (50%) of the people surveyed said they feel in control of their financial futures and are confident they are making the right savings and investment decisions. However, this means that many (50%) may still need to take steps to achieve their financial goals.

The long-term impact of inflation

Only 19% describe themselves as ‘active investors’, with the majority choosing to hold their assets in what are perceived to be ‘risk-free’ assets, notably cash, often unaware of the long-term impact that inflation may have on their purchasing power (i.e. what they can buy with their money).

Tomorrow’s retirees aspire to an active lifestyle

As more people look forward to a lengthy retirement, expectations about retirement lifestyles are rapidly changing. Aspirations for an active retirement are very strong as people expect to travel more, take frequent exercise and take up new hobbies.

Working patterns in particular look set to undergo massive changes: whereas one in ten of current UK retirees combine work and retirement, this figure is set to rise with 30% who see ‘continuing to do some paid work’ as a retirement goal.

Biggest current financial priority

‘Funding a comfortable retirement’ came up as the biggest current financial priority for the people surveyed. However, there’s a gap between people’s retirement goals and their confidence in achieving them. Only four in ten (41%) of UK adults are confident that they will achieve the retirement lifestyle they aspire to.

The simple problem is that many are prioritising short-term demands over long-term planning, with retirement suffering greatly because it is such a distant goal. Over half of people in the UK (53%) admit to not saving anything specifically for retirement. That number remains the same among those aged 35-54, typically the age at which earning power should peak and planning for retirement should become more of a priority, especially as people are living longer.

A better financial future

People are adopting a broad range of positive aspirations for their later life, but it is clear that savings and investments behaviour often falls short of what is required to meet these aspirations. Over half claim to take their financial planning seriously, yet much of this planning is focused on meeting short-term goals.

Spending is often prioritised over long-term savings. Even where individuals are taking steps on the journey towards a better financial future, the sense of concern among savers and investors means that half of all people remain very much risk-averse. Also cash is seen as the asset class of choice.

[1] BlackRock Investor Pulse survey, conducted in association with research agency Cicero Group in September 2013 amongst a nationally representative sample of 17,600 individuals in 12 countries aged 25 to 74 years old, of which 2,000 were UK residents. The results of this survey are provided for information purposes. The conclusions are intended to provide an indication of the current attitude of a sample of citizens in the UK to saving and investing and should not be relied upon for any other purposes.
You should be aware that moving out of cash in search of higher returns will involve accepting a greater risk of capital loss. There are no guarantees that financial market investments will provide an effective way of combatting the impact of inflation on your savings. Past performance is not a guide to future performance.

What to consider if you are approaching your retirement

Sooner or later we will retire, and the decisions we make today are the ones that will determine the standard of living we will enjoy in the future. If you are approaching your retirement there are some very important choices you need to make that will determine how much income you live on once retired.

Firstly, you’ll need to check your personal, company and State Pensions. You must make sure you have enough income to provide for your needs in the future. If you are planning on using your pension to buy an annuity when you retire, it is essential that you don’t just accept the deal offered by your pension provider, as you could potentially lose out on a significant amount of money over the lifetime of the annuity.

Exercise your 
‘Open Market Option’
You should always exercise your ‘Open Market Option’ that will enable you to get the best possible deal for your pension fund. Comparing the different rates available – instead of buying an annuity from the company with whom you have built up your pension savings – could result in an increase to your retirement income of up to 40 per cent depending on your circumstances.

You can buy your annuity from any provider and it certainly doesn’t have to be with the company you had your pension with. The amount of income you will receive from your annuity will vary between different insurance companies, so it’s essential that you receive professional financial advice before making your decision.

Don’t forget about inflation
As you are likely to spend around 20 or even 30 years in retirement, remember that inflation could have a serious impact on the purchasing power of your savings. If you have opted for an inflation-linked annuity rather than a level annuity, then you will have protection against the rising cost of living.

Work out carefully how much income you need to draw
When you retire, you don’t have to go down the route of purchasing an annuity. An alternative to purchasing an annuity is to leave your pension invested and take a portion of the pension pot each year as an income, hence the phrase ‘income drawdown’. This option may also mean that you could possibly leave your family some legacy when you die, as your pension pot, after tax of 55 per cent, passes on to your family according to your wishes. However, if you take out too much, your capital could soon be eaten away. But the upside of not buying an annuity is that your funds remain invested with the potential for further growth.

Another route worth considering is flexible drawdown
To qualify for flexible drawdown you must 
have a guaranteed pension income of 
£20,000, known as the ‘Minimum Income Requirement’. If you are eligible, then you can withdraw the rest of your pension fund in a manner that best suits your circumstances, whether that’s in its entirety or in part withdrawals. It is often sensible to make withdrawals over several years though, as you still pay income tax on any withdrawals, so the larger the withdrawal the more tax you’ll pay.

Have you forgotten about any other pensions?
It can be easy to lose track of pensions over time, especially if you move from job to job, 
but you can locate a lost pension by contacting the Pension Tracing Service online at This service is free, and if they locate your pension they’ll give you the address of your scheme provider.

Not sure about your retirement options? There is a lot to think about as you approach your retirement. Contact us to discuss your retirement options and we’ll help you decide what’s right for you. We look forward to hearing from you.

While annuities are generally guaranteed to be paid, remaining invested and using drawdown means that the value of your pension, and the income from it, can go down as well as up. Therefore there is a chance that you may not get back as much as you would by using an annuity. Drawdown is a high-risk option which is not suitable for everyone. If the market moves against you, capital and income will fall. High withdrawals will also deplete the fund, leaving you short on income later in retirement.