Covid-19: Intergenerational Financial Support

April 2020
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The emotional and health impact of the Covid-19 outbreak is rightly uppermost in our minds, but it and the extended lockdown will affect almost everyone’s finances. Just like the disease itself, the financial impacts can be unpredictable and random. While the Government’s financial support schemes are welcome, there are many, who through no fault of their own, will fall through the cracks and suffer financial hardship as a result. In any one family there may be disparate outcomes, depending upon personal circumstances. Here we look at some of the measures families may take to lessen the short-term financial burden to enable long term plans to remain on track. 

Spending patterns will have changed dramatically in the last few weeks, whether you are already retired, on furlough, working from home, or a business owner, your income and/or spending patterns could be altered by the lockdown. In the short term you may be spending less.

The retired population, while most vulnerable to the disease, may have seen little change in their income as a result of the lockdown.  The State pension increased from April, so if spending has fallen, surplus cash may be building up.

In the last few weeks your investments may have fallen in value. Now may be the time to review the income you are taking from these.  Turning off income withdrawals not needed for immediate spending will enable the value of your investments to recover sooner and help to make your longer- term income more sustainable. If you have surplus income, reinvesting some of this may help your funds to recover more quickly. 

If income is from guaranteed sources, such as State pension, a defined benefit scheme or guaranteed annuity, your income will continue to be paid and may even increase, where annual increases are automatic. Building up surplus cash in your savings accounts over and above what is needed for an emergency fund and regular outgoings may mean that your savings are unlikely to keep pace with inflation and may be put to better use.

If investments have been cashed in to pay for a holiday, new car  or home improvements, those projects are likely to have been cancelled or postponed, so cash balances may be higher than needed in the short term and reinvesting,  gifting or lending  that money to family members, may now be more appropriate.

Supporting Family Members

If other family members are unable to work, are facing reduced income under the furlough or self- employed income support schemes, or worse still, do not qualify for these, then making funds available to them could put your surplus to better use. 

How you help family members needs to take account of their needs, the most effective way to help and the extent that any help may disqualify them for support from taxpayer funded schemes. If cashing in accounts or investments to help family members, doing so in the way that causes least damage to your finances by way of penalties and charges, loss of investment returns and tax considerations should all be key parts of your decision making. Understanding what you can afford to give away or lend and how to achieve fairness amongst family members is important too. 

Younger members of the family may also benefit from advice on how the various Government support schemes work, how to temporarily  reduce some of their outgoings, tax refunds and allowances they may qualify for and how to rearrange their finances, so that they may come out of the lockdown with greater financial resilience as we all face a less certain financial future. 

A first step towards this is in understanding personal spending needs, both in the short and longer term. Our app, Hummingbird, is available free to LEBC clients who retain our services on an annual fee basis and can be downloaded by anyone on Apple (£1.49 per month) and Android (99p per month) devices. Using open banking technology, it enables all income and spending to be recorded and categorized with real time data to set and adjust budgets and savings goals. It can also capture the value of savings, investments, pensions and borrowing to give the user an up to date and comprehensive overview of their finances, a useful tool in managing uncertain finances. 

Your usual LEBC contact will be able to help you to access Hummingbird and to provide advice and guidance on how you might adjust your savings and investments or divert funds to others who may need your help at this difficult time. 

Kay Ingram                    
Director of Public Policy 

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.

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