With our busy lives we can slip into deferring decisions or put off taking action on financial matters. But there can be a high price to pay if you let things slide. Our checklist will help you tackle those important financial tasks now
Tackling important financial tasks never seems that appealing, which is why so many chores get left on the to-do list. But while there are some ‘life admin’ needs that have no particular urgency – beyond costing you extra cash until you act – others can cause serious financial headaches further down the line if you leave them too long. Here are the 10 jobs you should do today for peace of mind…
ONE: Name intended beneficiaries on your pension
If you have a work or personal pension, you can name the beneficiaries – typically a spouse and children or anyone financially dependent on you, who could receive a financial payout from the scheme in the event of your death.
If you don’t specify your intentions by nominating beneficiaries, the trustees of your scheme (in the case of employer pensions) and the provider (in the case of personal pensions) have discretion over who, if anyone, will receive any lump-sum death benefits. This may not be the person or people who you had intended to receive them.
Kate Smith, head of pensions at Aegon, says: “Many people don’t realise the importance of completing a nomination form and keeping it updated regularly.
“The situation is often brought to light where there are complicated family circumstances such as divorce or separation, or stepchildren with claims and counterclaims regarding who should benefit.”
TWO: Write a will
Making a will is important to ensure your assets are passed on to the people you wish after your death. If you don’t have a will – known as dying intestate – assets will be distributed in a standard way according to the law. This may not always be the way you might expect or want.
Having a will in place also makes it easier and less stressful for family members to sort things out after your death.
If you have children or other family members dependent on you then a will is particularly important as you can leave instructions about their care and financial support.
Bik-ki Irving, wills, trusts and probate partner at Altrincham-based solicitor Myerson, says: “Family structures are more complicated nowadays, such as those involving children from previous marriages. A will is important to ensure you leave your assets to the people you wish.
“Trusts can be useful to help provide for different sets of beneficiaries and, if set up correctly, they can also help you to save tax,” she adds.
When setting up a will while it is not compulsory to use a solicitor, it is advisable, to ensure it is set up correctly. If there is likely to be an inheritance tax liability you can use a will to reduce the tax by maximising allowances.
Using a solicitor will typically cost between £150 and £300, depending on the complexity, or £300 to £600 for a couple wanting mirror wills. If you want to include trust planning, the costs will typically start from about £1,000.
THREE: Check your credit report
This is a quick and simple task that can be done online for free. The three main credit reference agencies that store financial information about us all are Experian, Equifax and Callcredit (or its online brand, Noddle). Some agencies will give you an online credit report for free but some require you to sign up to a monthly subscription service you must then cancel before you are charged – so be wary of this.
Your credit report will show the companies you have a financial contract with and your payments history. They also show missed payments and any county court judgements against you.
It is important to check regularly all the information held about you is correct – and make corrections if necessary. Any mistakes could affect your ability to get credit – such as a mortgage or a credit card – in the future.
FOUR: Buy life and critical illness insurance
Many of us first think about protection insurance when we buy a property or start a family, but a high proportion of people never get around to taking out cover. This could be a costly mistake. Being diagnosed with a life-threatening illness can cause financial devastation. Good quality policies offer a safety net and peace of mind that you’ll have a financial cushion should the worst happen. Most policies will pay out a specified lump sum on diagnosis or death.
Check what cover, if any, you may be eligible for through any employer schemes first and consider taking independent advice.
“Thinking about premature death and serious illness is somewhat morbid, but we need to be pragmatic,” points out Alan Lakey, director at Highclere Financial Services, a specialist in protection policies. “Those who put off buying cover run two risks – first, that they die or suffer critical illness, with the financial repercussions for their family, and second, that their health may decline, making it more expensive or impossible to obtain insurance in the future.”
FIVE: Set up a lasting power of attorney
Putting in place a lasting power of attorney (LPA) is a prudent step and should be done early – or before it becomes necessary – as it cannot be set up once you have lost mental capacity. With an LPA you assign someone you trust to be your attorney – this means they have the legal authority to make decisions on your behalf, in the event you are unable to do so.
LPAs (in England and Wales) can be set up for financial affairs and property and for decisions relating to your health and welfare. You may want to use a solicitor but it is not mandatory. It is free to complete the forms (available at gov.uk) but there is an £82 fee to register an LPA with the Office of the Public Guardian. The LPA can only be used once it is registered.
For info on powers of attorney in Scotland and Northern Ireland go to mygov.scot and indirect.gov.uk.
SIX: Lodge paper shareholdings with a stockbroker
Although it may feel reassuring to hold tangible proof of your investments, trading in your paper share certificates to a stockbroker to obtain an online ‘nominee’ account removes the risk they are lost or stolen. In an increasingly digital age it makes more sense and should be more convenient to hold shares online, rather than filing certificates away at home in a dusty cabinet or drawer.
Most stockbrokers won’t charge you to transfer paper certificates into an online account, but you will then be subject to their online dealing charges if and when you want to sell. So it may be worth comparing brokers and their charges first. You should not lose your right to attend company AGMs and receive shareholder perks, such as vouchers and discounts, by giving up your share certificates.
SEVEN: Check your State Pension forecast
By looking at how much basic State Pension you will receive and when you can take it – based on your National Insurance contribution records – you can see how the State Pension will fit in to your wider retirement income, for example, along with other work and personal pensions and your savings and investments. Armed with this knowledge you can see if you need to be saving more.
Crucially, the forecast will highlight any previous years where you do not have the full NI contribution record. You can then decide if you want to make the necessary payments to plug these gaps – if you are eligible to do so – to increase your future State Pension. You can usually only pay for gaps in your National Insurance record from the past six years. To check your State Pension forecast go to gov.uk/check-state-pension or call 0800 731 0175.
To qualify for the full basic State Pension – currently worth £164.35 per week – you must have 35 qualifying years of National Insurance contributions.
Kate Bradley, 39, a clinical psychologist working in the NHS, recently went online to look at her State Pension forecast. Kate, from Sheffield, is married with three young children and wondered whether her extended maternity leave would have had an impact on her NI contribution record.
“I was pleased to see that I have 17 years’ worth of full contributions already so I’m making good progress,” she says. “It is helpful to see what sort of income this equates to. It isn’t really a lot of money – and who knows if the State Pension will still be paid by the time I am 68 when I am eligible to get it. But it is a good reminder to keep saving more generally.”
EIGHT: Sign up to your employer’s private medical insurance
Employees who have private medical insurance (PMI) through an employer’s group scheme should consider the benefits. This can often be an extremely cost-effective way to get private health cover – and in some cases cover may extend to a spouse and dependent children.
You don’t want to wait until you fall ill or need a procedure to consider PMI as you won’t usually be able to get cover for that condition. Cover will then be much more expensive once you have pre-existing conditions.
There is usually tax to pay on the benefit if you get cover through a work scheme (paid from wages through Pay as You Earn – PAYE), but it could still be well worth it for this valuable insurance.
NINE: Take a pound out of your pension before making bigger withdrawals
Savers are being hit with big tax bills when they take a lump sum out of their pension for the first time through income drawdown. This is because pension companies apply tax through the PAYE system – but on the first occasion they apply an emergency tax code that assumes the amount you are withdrawing is your standard monthly income. The pensioner will usually overpay tax and have to claim it back.
Some experts have suggested a potential loophole to avoid this situation: withdrawing a small sum from your pension pot first before you want to make a larger withdrawal. When you then withdraw the second larger sum the pension provider applies your usual personal tax code – so you should be taxed correctly.
It is impossible to say if this may work every time – but it may be worth a try to avoid the hassle of claiming a rebate. The only issue could be if your pension provider has a minimum withdrawal amount – £1,000 for example – so do check this.
TEN: Close down your old accounts
It may not seem important, but failing to close unused credit card, bank and savings accounts increases your risk of fraud. If a card or account number were to fall into the wrong hands it could lead to an expensive nightmare.
Banks and credit card companies don’t always pay up immediately when you’ve been the victim of fraud so you could end up out of pocket for months while the fraud is unravelled. Tidying up and closing old accounts is sensible. Contact your providers, officially close the accounts and cut up any cards.
Closing old credit card accounts
I closed a credit card account that I had not used for years. Shortly after my credit score was REDUCED because I now had less credit and was deemed more of a risk. Perverse or What?
Closing old credit card accounts
That happened to me too. I closed a credit card account that I hadn't used for a long time because I had two others and my credit score was reduced. The credit card company of the one I'd cancelled then called me and asked me if I'd intended to close it, I said yes, but they then explained to me that it would adversely affect my credit score so I agreed that they could send me a new one and my credit score went back to what it was before. You're right, it is perverse!