Retire Invest Summer 2020

Can you afford to leave protection to chance? The social security system has come under intense scrutiny during the coronavirus pandemic, highlighting some of the most serious gaps. There is nothing quite like a crisis to show where societies are vulnerable. In the UK, the immediate concern of the coronavirus pandemic was the resilience of the NHS, which initially appeared at risk of being overwhelmed by demand for intensive care beds. Then, like many other countries, the UK was forced to provide extra financial support for people who suddenly found themselves out of work in these unforeseen circumstances. The most significant element of the government’s response was the Coronavirus Job Retention Scheme (CJRS), which by late May was covering nearly 8.4 million employees – handing them up to £2,500 a month in replacement ‘pay’. Had the CJRS not been put in place, many of those employees would have looked to means-tested Universal Credit, under which the standard allowance for a couple aged 25 or over is just £594 a month, before any additions (e.g. for children). Even that lowly figure includes a temporary increase for 2020/21 of about £87 a month. The damage that could have been done to millions of families by the fallout from Covid-19 has been mitigated by the government’s multifaceted response. However, the Chancellor is already acting to limit the cost of the Covid-19 measures on the government’s finances. In a year or so from now, the social security safety net will probably have reverted to its lowly pre-Covid-19 levels. When that point is reached it will once again be important that you have your own financial protection arrangements in place to cover possible income loss due to illness or disability. The lesson of this experience is that the ‘normal’ social security safety net is inadequate, but full protection would probably be too costly for the government: protection needs to be personal. The kids are alright… The first Child Trust Funds (CTFs) will mature in September, when the holders celebrate their 18th birthdays. The Chancellor has more than doubled, to £9,000, the amount that can now be saved into a CTF and its replacement, the Junior ISA (JISA) for the 2020/21 tax year, creating the opportunity to make more substantial savings towards younger family members’ nest eggs. CTFs were made available to all children born between 1 September 2002 and 2 January 2011. Their value will vary considerably: some parents will have made substantial contributions over the years, while others will find that this ‘trust fund’ contains just the initial payments made by the government. These consisted of an initial £250 to invest in either a cash or stocks and shares CTF plan (lower income families received a £500 payment). This was later cut to just £50, before the scheme was withdrawn altogether in 2011. CTFs were replaced by JISAs, which didn’t come with any ‘free’ money from the government, although parents could continue to contribute to existing CTFs. However the annual savings limits of both JISAs and CTFs have increased over the years. A child can’t have both a CTF and a JISA, but they can transfer a CTF into a JISA. Although the tax benefits are the same, interest rates paid on cash JISAs are higher than on the older CTFs. There is also more product choice. Each child can access their CTF or JISA funds from their 18th birthday. For most young adults, coming into these savings may be their first experience of managing substantial sums, so it’s worth discussing with them in detail. B The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The tax efficiency of ISAs is based on current rules. The current tax situation may not be maintained. The benefit of the tax treatment depends on individual circumstances. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances. The Financial Conduct Authority does not regulate tax advice, and tax laws can change. The high income child benefit charge means that a family in which a parent has an income between £50,000 and £60,000 have a choice: ■ ■ Either choose to stop receiving child benefit (£21.05 a week for the first child and £13.95 for each other child); or ■ ■ Pay back a percentage of child benefit paid, in income tax. Those earning £60,000 or more will have to repay the entirety in income tax if choosing this route. If you have chosen the stop-payment option, you may wish to revise your choice in 2020/21. Your earnings may well fall in the current tax year – perhaps you have been furloughed on £2,500 a month – in which case your annual income may drop below the £50,000 threshold at which these complications occur. A claim for child benefit payments can only be backdated for a maximum of three months, so if you are in that situation, the sooner you ask the Child Benefit Office to restart payments, the better. B The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. C r e d i t: P i x e l S h o t / S h u t t e r s t o c k . c o m PROTECTION INVESTMENT TAX Restart child benefit? Credit: William Potter/Shutterstock