Why You Need To Discuss Your Pension With Your Family

Are you looking for a way to ensure your family’s financial security? Financial planning is essential for helping families plan for their futures. From budgeting and saving to pensions and investing in assets, there are various ways families can work together to protect themselves. In this blog, Hilltop examines the many benefits of family financial planning and provides some practical tips on how and why you should regularly discuss family finances.   

Why discuss your pension with your family?

It’s easy for family members to fall into the trap of not discussing financial matters. But it’s important to have regular family discussions about financial matters to understand the range of options available. This allows families to be more financially confident and better prepared for the future. From planning for retirement to workplace pensions, ISAs and junior ISAs, numerous options are available to safeguard your family finances.

Here are two major benefits of holding regular family finance discussions:

Helps dependants to plan for their futures

When discussing your pension with family members, it’s important to remember that you’re not just protecting yourself but also those who depend on you financially. Therefore, it’s important to discuss the future and how your dependents will be financially supported when you retire and in the event of your death. In addition, discussing your pension and other aspects of family finances enables family members to plan for their futures.

Encourages children to start saving early as possible

Discussing your pension and wider family finances with your family encourages adult children to think about starting a pension early in life. The earlier they begin saving, the more benefit they will reap from having a pension. Compound interest means that the earlier they start, the bigger their pot may be in retirement. Therefore, discussing pensions with family members can encourage adult children to become more financially savvy.

What to discuss with your family

If you’re wondering what aspects of family finance to discuss with your loved ones, the following areas are great places to start. The more open and honest you can be, the more financially confident your family will be. 

Compound interest

Compound interest is an important element of any family finance discussions. By discussing compound interest, family members can better understand how saving into a pension can reap higher returns over the long term. This is because compound interest effectively allows you to accumulate interest on both the initial principal and the accrued interest over time. This understanding can help family members to make better financial decisions.

Workplace pensions

Workplace pension discussions are important for family finance conversations as they provide an opportunity to educate family members about the benefits of having a workplace pension. With a workplace pension, your employer contributes funds towards your retirement pot, and you benefit from tax relief. Understanding this fact allows family members to understand the importance of saving for the future.

ISAs

When discussing family finances, ISAs should be a key area of conversation. ISAs are savings accounts that offer tax-free returns on your savings. This can be an important part of family finance conversations as it encourages family members to consider the long-term benefits of saving rather than spending on short-term pleasures. So ISAs are another opportunity to help family members understand the importance of saving for their futures.

When discussing ISAs, it is also worthwhile bringing your family up to speed with the differences between Cash ISAs and Stocks and Shares ISAs. Cash ISAs are effectively zero risk, tax-free savings accounts that provide quick access to your savings. Meanwhile, Stocks and Shares ISAs invest your money in various assets (including the stock market), which can potentially deliver a higher tax-free return over the longer term.

However, as with any investment, there is a degree of risk involved. The value of your investments can rise and fall, and you may get back less than you put in. For that reason, Stocks and Shares ISAs are better suited to savers who are happy to lock away their money for at least five years to mitigate any market volatility.

Junior ISAs

Junior ISAs should also be part of the conversation when discussing family finances. Junior ISAs are tax-free savings accounts specifically designed for children. These can be beneficial for family finance conversations because they provide an opportunity to encourage children to get into the habit of saving from a young age. By discussing junior ISA accounts, younger family members can better understand how to look after their money effectively.

Can you start a pension for children in the UK?

Yes, it is possible to start pensions for children in the UK. Believe it or not, you can set up what’s known as a ‘Self-Invested Personal Pension’, or SIPP for short, specifically for under 18s. These so-called Junior SIPPs allow parents and grandparents to contribute up to £2,880 annually to the fund. Thanks to the current basic 20% tax relief, the government adds a further £720, increasing the annual contribution to £3,600. 

As well as the compound interest earned on a Junior SIPP, investments held within the fund grow free of income and inheritance tax (IHT). That makes pensions for children highly tax-efficient savings vehicles.

Bonds

Fixed rate bonds are another useful savings vehicle for children. Fixed rate bonds generally offer a higher rate of interest over a set period of time (typically one to five years). These types of accounts normally only accept a single upfront deposit, are unlikely to be taxed, and usually come with a penalty if you withdraw funds early. Bonds can be an excellent means of generating a guaranteed return on your investment for the benefit of your kids.

Pension advice from Hilltop

Having conversations about family finance can help families become more financially confident. By discussing key topics such as compound interest, workplace pensions, ISAs and junior ISAs, family members can better understand how to make their money work smarter for them. This helps family members to start planning responsibly for the future and can also help to teach children the importance of financial planning.

Hilltop Financial Planning is here to help families get the most out of their finances and plan for their future. With our expertise and experience, we can help you and your family to achieve financial success. For advice about pensions and investments or to arrange a consultation, please contact us on 0161 413 7051. Our offices are open 9am-5pm Monday to Thursday and 9am-4pm on Fridays. Raise your family’s financial interest rate today!