It’s understandable that parents and grandparents want to pass their wealth on to the next generations and by making a will we can decide what happens to our property and possessions after our death. Although you do not have to make one by law, it is the best way to make sure your estate is passed on to family and friends exactly as you wish. If you die without a will, your assets may be distributed according to the law rather than your wishes.

A complicated and costly process

Dying without one can create a complicated and costly process, possibly causing family rifts and further problems for those left behind. A third (32%) of retired Britons declared that losing a partner, loved one or close friend is their greatest fear in retirement, according to research from Standard Life.

The savings and investment specialist Standard Life is using the research to encourage the public to consider their estate planning requirements, including the creation of a will, so they can ensure their loved ones are financially secure after their death.

A legally binding will

Standard Life is highlighting to the public they should seek professional advice as the legislation associated with passing on wealth is very complicated and the rules between married and civil partnered couples does not apply to cohabiting couples or close friends. The simplest way for individuals to ensure their estate is paid to the right people is to create a legally binding will - previous research from Standard Life showed that as little as 48% of the people in the UK have a will in place.

Further results from the research shows in light of the current inflationary pressures the public is facing, the rising cost of living (20%) is the retired population’s country’s second worst fear in retirement and worries about getting returns on their savings and investments (11%) coming in third for those surveyed.

Serious financial impact

Regardless of an individual’s age losing a loved one can have a serious financial impact, but this problem is accentuated in retirement. And while married and civil partner couples benefit from the spousal inheritance tax exemption and the transferable nil rate band, cohabiting couples or close friends don’t.

The complications of dying without a will can be devastating on others and this is made even worse when going through the heartache of personal loss. Seeking the right advice when creating a will ensures loved ones will be financially secure and that their wealth is passed on correctly.

The research also shows that nearly half (47%) of the UK want to leave an inheritance to their children, with 11% directing it to their grandchildren.

Laws and tax rules may change in the future. The information here is based on our experts’ understanding of the current situation.

The value of these investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Act.

Britons are still reluctant to talk openly with their parents about any expected inheritance, according to figures released by Aviva. Almost two-thirds have not, or would not talk about the subject openly with their parents, despite the fact that 40 per cent of people still expect an inheritance and may even build it into their retirement planning.

“Holy-grail” of inheritance

Despite this expectation, encouragingly more than three-quarters (76%) of those asked would still be happy for their parents or grandparents to take money from their property, often seen as the “holy-grail” of inheritance, so that they may enjoy their retirement.

As highlighted in Aviva’s Real Retirement Report, the rising cost of living has meant that the average unsecured debt of over-55s is £17,112, including debt on credit cards (30%), personal loans (14%), overdrafts (10 per cent) and store cards (7%).

Most valuable asset

For many over-55s, the home is their most valuable asset. While property values are no longer racing ahead as they once did, house prices have more than doubled over the last 20 years, and the average house price for over-55s is £231,306*. This is much higher than the national average of £160,519*.

As house prices have risen, equity release has become increasingly popular, as more cash-strapped retirees consider how to fund the lifestyle they want. Turning to their home in order to fund their later years has been a solution for many, with the over-55 population holding an estimated £1.9 trillion** in equity in the UK.

* May 2011
**Calculations taken from the June 2011 Real Retirement Report by Aviva.

We can’t predict the future, which makes it all the more important we’re prepared for whatever life may throw at us. In the event that the worst happens to you life insurance could help support your dependants, giving you peace of mind that they’ll be financially protected when you’re gone.

A range of life insurance benefits

Life insurance could provide a range of benefits should the worst happen to you, enabling you to pay off your mortgage; ensure your family is financially protected, cover the cost of school or university fees and still be able to pay for childcare costs.

Research from Scottish Widows shows that an estimated 28 million¹ of the UK population do not have any life insurance in place, leaving their loved ones vulnerable to financial insecurity if something were to happen.
56 per cent of adults in the UK don’t have any life insurance in place to secure the financial wellbeing of their loved ones.

More UK adults insure their pets (15 per cent) and mobile phones (13 per cent) than they do their income in case of ill health (12 per cent)

One-fifth of the population would consider cutting back on critical illness cover (21 per cent) and life insurance (20 per cent) compared to just 15 per cent prepared to cut back on broadband access

Over half the population (54 per cent) say they review their finances regularly, yet uptake of protection products remains low.

Slow uptake on life insurance protection products

The third Scottish Widows Consumer Protection Report, which details research carried out on 5,148 UK Adults², shows that many are continuing to shun protection products including life insurance, critical illness cover
and income protection.

Although over half of the UK population (54 per cent) admit to reviewing their finances once or twice a year and awareness of protection is high, the reality is that the take up of these products remains exceptionally low.

Awareness remains high

From those surveyed, 97 per cent were aware of life insurance and the importance of having it, however only 44 per cent had cover. Similarly, when it comes to critical illness cover the awareness remains high (86 per cent).

However the percent of respondents who have actually taken out a product is worryingly low at just 12 per cent. The same goes for income protection insurance where the awareness is 83 per cent, with take up at just 7 per cent.

The research also shows that almost a quarter of the UK population (23 per cent) say they believe they cannot afford life insurance and when it comes to critical illness cover 26 per cent state this as their primary barrier to not taking it out.

Luxury vs. necessity

A worrying trend is that many material goods (e.g. internet broadband) are seen as ‘essential’, whereas insuring income in case of illness is seen as a ‘luxury’. 69 per cent of respondents said their broadband was essential to their day to day living and 55 per cent stated their mobile phone.

In contrast just 35 per cent said ensuring their financial security if they were unable to work was essential. Just 15 per cent of respondents said they would consider cutting back on broadband internet access, whilst a fifth said they would be prepared to cut back on critical illness and life insurance.

Coping strategies should the worst happen

The research shows that when faced with the prospect of the loss of their or their partner’s income, over two-fifths (44 per cent) of respondents would make cuts on their general expenditure and 43 per cent said they would delve into their savings. This is a worrying statistic, given that 58 per cent of people surveyed have less than £2,500 in savings, don’t have any at all or don’t know how much they have. This would not go far if you consider that the average monthly mortgage (Interest and Capital repayment) in the UK for new borrowers currently stands at £577³ a month.
¹ General population over 18 in mid 2010 = 49,212,000 according to GAD

http://www.gad.gov.uk/Demography%20Data /Population/2006/uk/wuk06singyear.xls (F27 to F104). Calculation = 56 per cent of 49,212,000

² The survey was carried out online by YouGov who interviewed a total of 5,148 UK adults between 23rd and 28th February 2011. The figures have been weighted and are representative of all UK adults (aged 18+)
³ Halifax and the Bank of England average monthly mortgage payment for a new borrower (Interest and Capital repayment, February 2011)

Millions of people are not saving enough to have the income they are likely to want in retirement. Life expectancy in the UK is increasing and at the same time people are saving less into pensions.

In 1901 there were 10 people working for every pensioner in the UK. In 2005 there were four people working for every pensioner. By 2050 it is expected that this will change to just two workers for every pensioner.*

Reform of workplace pensions

The Pensions Act 2008 laid the foundations for a fundamental reform of workplace pensions, requiring every employer to automatically enrol their workers into a qualifying pension scheme, if they are not already in one, and contribute to that pension.

Addressing saving issues

Automatic enrolment aims to address the issues that prevent people from saving into a pension scheme, such as:

1. Pensions saving being complicated
   and confusing;
2. People simply not getting around to it;
3. A lack of suitable pension products being available for people on low to moderate incomes
4. Lack of employer pension provision, particularly in smaller firms.

Auto-enrolment regulatory requirements

The majority of larger employers (93%) do not yet have firm plans in place to meet auto-enrolment regulatory requirements, according to research from Standard Life. The timing depends upon the size of the employer. This will apply to very large employers first, in late 2012 and early 2013. Other employers will follow during 2013 to 2016.

The pension scheme must be a qualifying scheme, meaning it must meet certain government standards. This is the first time that employers have been required by law to contribute to their workers’ pensions.

Undecided about contribution levels

Of the 200 larger employers surveyed by Standard Life, just 7% had reached a decision on how they will deal with auto-enrolment. 39% had set a date by which a decision will be made, however, over half of those surveyed (54%) did not know when they would have their plans in place.

Over half (56%) were undecided about the contribution levels they would be making for new members being auto-enrolled. Around a third (36%) of employers confirmed they would pay the same levels and just 5% indicated they would reduce payment for new members.

The research highlights that many employers still have some big decisions to make. The majority of those surveyed will need to commence auto-enrolment at some point during 2013 and there is a great deal of planning work that needs to be undertaken.

Spending time now understanding the financial impact of auto-enrolment will help employers identify the difficult decisions that need to be made. The sooner employers start the planning process, the easier the financial and administrative transition will be. To find out more please contact us.

*Department for Work and Pensions

Saving tax is a preoccupation for many investors. However, for some experienced investors the Alternative Investment Market (AIM) offers an invaluable tax break in the form of business property relief (BPR).
AIM is the most successful growth market in the world. Since its launch in 1995, over 3,000 companies from across the globe have chosen to join AIM, helping smaller and growing companies raise the capital they need for expansion.

Strong grounds for optimism

The most recently published survey of AIM companies and investors shows that there are strong grounds for optimism about the future of AIM and the small-cap sector.

Total fundraisings by companies on AIM were up 24 per cent in 2010 and the number of new companies that joined nearly trebled. The AIM All-share Indices increased in 2010 by more than 40 per cent, out-performing the FTSE 100 over the same period.

Inheritance Tax Savings

By investing in certain AIM-listed companies, experienced investors could potentially save some 40 per cent on inheritance tax (IHT) on their eventual estate.
The shares that can be traded on AIM must not be fully listed on the London Stock Exchange (LSE) and will fall outside an investor’s estate providing they are held for just two years. The shares must be held beneficially for the investor, which can be done either directly or via an investment manager.

No Portfolio Size Limit

There is no limit to the size of the portfolio, which can in all respects be treated like a normal portfolio. Shares could be ‘swapped’ for other AIM shares without losing the IHT break. The shares must be held until death; however, if they are cashed and the proceeds not reinvested in other BPR qualifying shares, they will fall back into an investor’s estate and be taxed accordingly.
It’s therefore important that the portfolio can be earmarked for the estate and won’t be needed during a person’s lifetime, although it is, of course, possible for it to revert back to the investor should they subsequently need the funds for expenses such as retirement home fees.

Lower level of due diligence

Liquidity risk is an important consideration and investors need to accept that AIM companies are subject to a lower level of due diligence than main listed firms. But a ‘normal’ equity portfolio of LSE stocks also carries risk for investors. AIM now has a market value of £75bn, according to the LSE.

There are plenty of well-run, highly successful companies listed on AIM with a strong market capitalisation. These companies offer BPR and therefore IHT advantages should a person holding them die, unlike their listed counterparts.

Investing is not just about tax breaks, it also needs to make commercial sense. A tax break won’t compensate for a poor investment decision and you should always seek professional advice to discuss your particular situation.

Investments in AIM companies are by their nature generally considered to be higher risk. The value of these investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

With further tax increases likely on the horizon, there really is no time like the present to take a step back and look at how you could reduce your taxes and improve your financial planning strategy.

The end of the current 2011/12 tax year is 5 April. We have provided an overview of the key areas you may wish to consider that could help you achieve a more secure future for you and your family.

Make use of personal allowances

Every person in the UK is allowed to earn a certain amount of money each year without paying income tax, known as a personal allowance. This tax year, the personal allowance is £7,475, with higher allowances available to those aged 65-74 (£9,940) and age 75 and over (£10,090). If you become 65 or 75 during the year to 5 April 2012, you are entitled to the full allowance for that age group. If you earn income above £100,000 you start to lose the personal allowance (at a rate of £1 for each £2 you earn above this limit).

If you are married and one partner is not working, if appropriate, it could be beneficial to transfer savings accounts to them, so that you pay less income tax as a couple. If you don’t make use of your personal allowance in any tax year, you cannot carry it forward to the next year.

Use your Individual Savings Account (ISA) allowance

ISAs allow you to save tax-efficient money. Within an ISA you pay no capital gains tax and no further tax on the income. You don’t even need to declare ISAs on your tax return. This tax year, you can invest up to £10,680 in a Stocks and Shares ISA or, alternatively, you can invest up to £5,340 in a Cash ISA and the balance in a Stocks and Shares ISA. Any allowance not used by the 5 April deadline will be lost forever. The value of tax savings depends on your circumstances and tax rules can change over time.

Top up your pension contributions

The annual allowance for the tax year 2011/12 is £50,000, inclusive of your own contribution and any other amounts paid into an approved pension scheme. Contributions paid by you to a personal pension plan or a stakeholder pension scheme are made net of 20 per cent basic rate tax. This means that for every £100 you want to save, you pay only £80. Tax relief of £20, topping your contribution up to £100, is then added by HM Revenue & Customs (HMRC).

If you are a 40 per cent higher rate tax payer, you may be able to claim additional tax relief. If you are a 50 per cent additional rate tax payer, you may also be able to claim additional tax relief at your highest rate. Depending on how much you earn over the higher rate tax band, and your level of contribution, any additional rate tax relief would range between a further 1 per cent up to a maximum of 30 per cent.

Plan for Inheritance Tax (IHT)

Effective IHT planning could save your family hundreds of thousands of pounds. If you haven’t done anything about a potential IHT bill, now is the time to take action. Currently, IHT is charged at 40 per cent on anything you leave over £325,000 when you die (£650,000 for married couples or registered civil partnerships). With rising property prices in recent years, this has resulted in more people being subject to IHT.

Start by writing a will, making it clear to whom you want to leave your money and possessions when you die. You may then want to try and minimise any potential IHT bill by giving regular small gifts away. Currently, you can give away a lump sum of up to £3,000 in each tax year without paying IHT – known as your ‘annual exemption’ – or £6,000 this year if you haven’t used last year’s allowance.

You also have a ‘small gifts exemption’, which means that you can make small gifts of £250 each year free of IHT. There is no restriction on the number of small gifts but they must each be to separate individuals. You cannot use your annual exemption and your small gifts exemption together to give someone £3,250.

Reduce your capital gains tax (CGT) liability

If you have made a taxable gain from the sale of property, shares, investments, businesses or any form of capital gain, make sure you don’t make unnecessary CGT payments. CGT is a tax charge that arises from the disposal of assets, such as shares or buy-to-let properties, charged at 18 per cent for lower and 28 per cent for higher rate tax payers. Every individual has an annual CGT-free allowance, which currently stands at £10,600 for the 2011/12 tax year.

The limit applies to each individual, so if you are married or in a registered civil partnership you each have an annual exemption and should ensure that each of you maximises your CGT-free gains.

There are different ways to reduce CGT bills, for example, equalisation or joint ownership of investments will transfer income to the lower-taxed one. This can be done CGT-free for married couples and registered civil partnerships. By transferring an asset into joint names, you could both make use of your tax-free allowance so that up to £21,200 of any gain can be tax-free in the current tax year. But the transfer to your spouse or partner must be a genuine outright gift, so this might not be a suitable strategy for everyone.

It may also be appropriate for some unmarried couples to equalise non-CGT assets such as bank accounts, which could mean that it becomes possible to equalise or transfer assets on whichever gains are less than their annual CGT exemption. Even if an asset is only put into joint ownership the day before it produces income – for example, through interest or a dividend – that income will still be split equally between both owners.

If you immediately sell employee shares that you get through a Save-As-You-Earn share option scheme, company share option scheme or enterprise management incentive scheme, you may have a CGT bill. Consider selling in several tranches, so that each year’s gain is within your annual tax-free allowance.

The value of these investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Act.

An Individual Savings Account (ISA) is a tax-efficient wrapper. Within an ISA you pay no capital gains tax and no further tax on the income, making it one of the most tax-efficient savings vehicles available.

If you are planning to open or transfer an existing ISA, you have until 5 April, but don’t leave it until this date. If you miss the deadline, you’ll lose your £10,680 allowance for the 2011/12 tax year forever. HM Revenue & Customs says your ISA application must have been received by your ISA provider and it must also have been processed to qualify.

What types of ISAs are there?

There are two main types of ISAs: Cash ISAs and Stocks and Shares ISAs.

Cash ISAs work in the same way as normal savings accounts. You choose if you want a fixed rate account, an easy access (or instant access) account or a regular savings account. The only difference is that you don’t pay income tax on the interest you earn.

With a Stocks and Shares ISA you can invest in individual stocks and shares or investment funds. Any profit you make is not subject to capital gains tax. However, you pay 10 per cent tax on dividend earnings.

Who can save in an ISA?

Anyone who is 16 or over and a UK resident can save money in a tax-efficient Cash ISA but to save in a Stocks and Shares ISA you need to be at least 18.

How much can I invest?

As of April 2011, the ISA limit increased for everyone by £480 to £10,680 per tax year. Of this, the maximum amount you can put into a Cash ISA is £5,340, and then the remainder can be invested into a Stocks and Shares ISA.

Alternatively, you may choose to allocate the entire £10,680 into a Stocks and Shares ISA.

When should I invest?

As long as you have not exceeded the current £10,680 ISA limit you can invest in an ISA at any point during the tax year and, depending on the ISA provider, you can allocate lump sums or monthly contributions that fit around your lifestyle.

Will ISAs always be tax-efficient?

The government has promised to keep ISAs indefinitely. However, the tax treatment of ISAs may change in the future.

Can I transfer my existing ISA money?

You can transfer the money saved in a Cash ISA to a Stocks and Shares ISA, even if it was saved in previous tax years, without affecting your annual ISA allowance.

The value of these investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Act.

The Chancellor of the Exchequer, George Osborne, presented his third Budget speech to Parliament on, March 21, 2012. It maintained the government’s strategy to reduce the deficit, contained far-reaching tax reforms, support for growth and reward for work.

The Chancellor set out the actions the government will take in three areas – creating a stable economy, a fairer, more efficient and simpler tax system and further reforms to support growth.

Cutting the tax rate Mr Osborne announced he would be cutting the tax rate for earnings over £150,000, saying in his Budget it raised “next to nothing.” He is also going to raise the threshold at which people start paying tax to £9,205 which it is estimated will leave millions of working people over £200 better off, but 4.4 million pensioners will be worse off next year when age-related tax allowances are frozen and come to an end.

Presenting his Budget speech, the Chancellor said: “This Budget supports working families and helps those looking for work. It unashamedly backs business. And it is on the side of aspiration: those who want to do better for themselves and for their families.”

He defended the decision to cut the top rate of tax by saying five times as much would be raised from the wealthiest by other tax and anti-avoidance measures being brought in.

He said the rate was the highest among G20 countries and damaged competitiveness. A report into the highest rate had found it had raised just a third of the £3bn initially predicted, Mr Osborne said. “No Chancellor can justify a tax rate that damages our economy and raises next to nothing.”

He also said a further £1,100 rise in the threshold at which income tax is paid from next year would benefit “every working person on low or middle incomes” and amounted to an extra £220 a year each - or £170 after inflation.

Biggest cash increase in the state pension ever

Allowances are currently more generous for the over-65s - at £10,500 up to age 74 and £10,660 after that. But they will be frozen, and stopped for anyone turning 65 after 5 April 2013. Mr Osborne said it would ‘simplify’ allowances and no pensioner would lose out “in cash terms”. He pointed to April’s “biggest cash increase in the state pension ever” of £5.30 a week.HM Revenue and Customs figures also show that 300,000 people will be drawn into paying the 40% higher rate tax from 2013/14 because of a reduction in the threshold to £41,450.

A new 7% rate of stamp duty land tax would be charged on residential properties worth more than £2m - and anyone trying to buy a £2m home through a company would face a punitive 15% stamp duty rate. Avoiding a “cliff edge” effect Child benefit had been due to be removed from all families with at least one parent paying the higher, 40% rate, of income tax - about £43,000 -from January 2013.

But Mr Osborne said he wanted to avoid a “cliff edge” effect - so it would now only be withdrawn when someone in a household earned more than £50,000, at a rate of 1% of the benefit for every £100 up until £60,000, when it would be cut entirely.

To discuss how the Budget 2012 changes could have impacted on your financial plans, please contact us for further information.

Budget Guide 2012/13

Budget 2012 Key Announcements

Allowances 2012/12

Personal Allowances 2012

Stamp Duty 2012

Budget 2012 Child Benefits

High Earners Budget 2012

Pensioners Budget 2012

Top Rate Tax

Budget 2012 Winners

Budget 2012 Losers

Providing for care in later life, whether for yourself or a relative, can appear a complex issue. Most people with assets over £23,250* will be required to pay for their own care.

Despite government warnings that the current elderly care system is unsustainable, 70% of over-55s don’t believe that they should pay for care in retirement. Of those who do, they state that just £3,610 is a fair cost for a lifetime of care, reveals Aviva’s latest Real Retirement Report.

With the annual cost of a room in a nursing home estimated to be on average £35,984**, how to pay for care can be a major concern for many people.

Long-Term Care Matters

- Just 2% of over-55s have long-term care insurance
- Majority (81%) worried or concerned about meeting care costs
- Almost half (46%) call on the government to set clear care standards

Care Conundrum

While the majority of over-55s would prefer not to pay for care, they do concede that it is unlikely that the State will be able to pay for everyone’s care. The most popular funding options were for the “better off” to contribute to the cost of their own care but for the government to pick up the tab for everyone else (51%) or for those who can afford to, to contribute to the cost of care (36%).

How affordability is determined was a matter for debate with some suggesting it should be based on current assets (16%) and others feeling lifetime income (14%) should be the measure. Irrespective of what system was used, the majority (53%) felt there should be a cap on how much an individual was forced to pay towards their own care.

Lack of Planning

Despite the fact that under the current system people are expected to finance aspects of their care, the research highlighted a significant lack of preparation. Over half (53%) of over-55s have no plans at all in place to meet these costs and 14% continue to believe that the government will cover all the fees.

Even amongst those who do say they have some plans in place, just 2% have long-term care insurance with others preferring to rely on savings and investments (13%), housing equity (9%), their pension funds (3%) and on family assistance (3%).

However, while some over-55s were happy to use their housing equity to finance care, a clear majority (62%) believe that they should not be forced to sell their house to pay for care. Those aged 65-75 were the most averse to seeing their homes sold to pay for care (68%) - potentially as they have already ear-marked the equity for other costs in retirement.

Significant Concerns and Confusion

Just 19% of over-55s say they are relaxed with the majority feeling concerned (41%), just over a quarter feel worried (29%) and - even - terrified (12%) about the prospect of meeting long-term care costs. While there were lots of different options as to how care should be funded, one clear message from the research was that the over-55s needed more guidance.

Indeed, almost half (47%) said there needs to be clearer information on the topic, 46% felt the government should set clear universal care standards and 36 per cent would like to see a single government department responsible for all care issues. This move would help to clear up any confusion as 48% of people look to the State in one form or another for advice on this issue - 18% to the government directly, 16% to their local council and 14% to a medical professional.

Rapidly Ageing Population

The research clearly shows that the majority of over-55s do not believe that they should have to pay for care in retirement. However with a rapidly ageing population, this is simply not possible and over-55s realise that they are likely to have to make some sort of contribution to the overall cost of their care.

The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

Business protection is designed to help safeguard a business against the effects of losing key staff, partners in a partnership or shareholders through death, terminal or critical illness.

The fact is many small and medium-sized businesses rely on certain key people. Without these key persons the business could suffer serious financial loss, from losing a sales manager whose relationships ensure the new business goals remain on target to the designer responsible for new products.

UK businesses remain worryingly passive

Recent research from Scottish Widows has revealed that UK businesses remain worryingly passive when it comes to protecting one of their key assets – their employees. This is despite over three-quarters (77%) admitting that they can identify at least one individual whose loss through death or critical illness would have a serious impact on the profitability or future survival of the business.

77% of businesses say they have a key employee whose loss would seriously impact the profitability or future survival of the business and yet only 13% of these businesses have protection in place to mitigate this risk

Over a quarter of UK businesses (27%) choose to protect against the breakdown of office equipment, compared to just 10 per cent who have protection against the loss of a key member of staff due to their death or critical illness

Meanwhile 23% of business owners have invested their own money into the business in the last 12 months

Businesses are reluctant to protect themselves

The Scottish Widows Business Protection Report, which details research carried out with over 500 UK business decision makers, shows that the majority of businesses are still reluctant to protect themselves from the unexpected happening to a business owner or key member of staff.

Just 13 per cent of businesses who have identified the importance of a key person hold insurance that would protect the business against their loss and despite such a low take up of business protection, 60 per cent of businesses admit that they would definitely not survive the loss of a key person.

Future survival of the business

In fact, it is more likely that UK businesses will insure office equipment, such as the photocopier, against breakdown than they are to insure a key individual whose skill sets are vital to the future survival of the business. The research shows that over a quarter (27%) of businesses have insurance for office equipment in place, compared to just 6% with financial protection if a key person dies and 4% with protection if a key person suffers a critical illness.

A better protected business population

A logical conclusion as to why the take up of Business Protection is so low is down to a lack of knowledge and understanding of the benefits - with 38% of businesses not taking out cover as they don’t see its value, 16% saying they hadn’t even thought about taking it out and 17% saying they thought it would be too expensive. This highlights the value of sound professional financial advice which could potentially ensure a better informed and better protected business population.

Unfortunately, despite the majority of businesses openly acknowledging that the loss of a key person would have a severe, if not fatal impact on their future survival, just 29% have actually sought any form of advice on business protection.

Personal assets at risk

In addition, the research highlights that in the last 12 months almost a quarter of business owners have invested their own money into their business, while a further 13% expect that they will have to in the future. If people are to put personal assets at risk then it is vital that they take the necessary steps to prevent a damaging impact not just on their business, but potentially their families and personal lives.

Iain McGowan, the Head of Savings and Protection at Scottish Widows said: “There are many reasons for business owners failing to take action. In some cases, this represents a failure to plan properly or a lack of understanding of the benefits of business protection.

“Perhaps even a refusal to contemplate the death or critical illness of a colleague. However the potential consequences to the business, demonstrate the importance of protecting arguably the one thing that can ensure its future survival; its employees.”

If you’re a business owner it’s crucial that you safeguard your business against the loss of a key employee. To discuss your protection financial planning needs, please contact us.

The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.