How do I help a young unemployed family member financially?
Kay Ingram: Financial support may help those whose savings were ravaged during a period out of work to rebuild them  Kay Ingram is a chartered financial planner and public policy director at LEBC Group. The impact of lockdown on personal finances has been felt most keenly by the 1624 age group. Some 13.3 per cent of them lost their jobs during lockdown, while the unemployment rate among the youngest workers is currently around one in 10, more than double the rate for workers overall. They have had little time to build savings of their own to tide them over. Older family members, whose income has been unaffected, may now want to know how they can help children and grandchildren. Here are five ways to do it, and some pitfalls to avoid. 1. Keep cash help low if they are unemployed  If your relative is claiming means-tested benefits, it is better to give material assistance like buying them food or other essential items rather than handing over too much money. The unemployed can apply for Universal Credit. This provides up to 344.00 per month for single people aged under 25 and 411.51 for over-25s. Couples may get up to 490.60 if they are under 25 and 596.58 if over 25. Additional payments for children and rent are available. However, this is a means-tested benefit and if household savings exceed 6,000 the benefit is reduced by 4.35 for every 250 of savings. Giving a lump sum to a relative in these circumstances could mean that they lose eligibility for benefits. 2. Put money in their pension  Money saved in a pension plan, for someone under state pension age of 66, does not count towards the means test. Third parties can fund the pension plan of anyone, from newborns up to 75 year-olds, with tax relief granted at 20 per cent - or 21 per cent in Scotland - for non and basic rate taxpayers. Keeping retirement savings going while someone looks for another job can ensure that their retirement plans stay on track. Big gaps in funding in the early years can make a real difference to when they can afford to retire. Helping out: Older family members whose income has been unaffected in the pandemic may now want to assist children and grandchildren  Everyone can have up to 2,880 per year saved in a pension, even if they have no earned income. If this is paid into a pension plan which gives relief at source, the savings are automatically topped up by HMRC with a 25 per cent bonus of up to 720 per year. If the recipient has earned income or self-employed profits in the tax year they can save up to 100 per cent of income or profits, capped at 40,000 a year, with the benefit of tax relief added to the savings. Any unused pension savings allowance from up to three earlier years can also be claimed. 3. Top up their Lifetime Isa  Those saving for a house purchase deposit get a 25 per cent boost to their savings from the Government. Up to 4,000 a year can be saved in a Lifetime Isa by those aged 18 -50 (accounts must be opened before age 40) with up to 1,000 a year added by HMRC. The tax-free account must be used for a deposit on a first home, or as retirement income after age 60. Withdrawals can be made for other reasons but result in a 25 per cent penalty on the withdrawal, clawing back the Government subsidy and 6.25 per cent of the savers own money. But beware, because unlike pension savings, savings in a Lifetime Isa count towards the means test for Universal Credit and other benefits. This has been criticised as savers can only access these savings before age 60 with a penalty applying, but they are treated within the means test in the same way as easy access savings. So, providing funds to put in a Lifetime Isa can be beneficial, but only once a young person expects to remain in stable employment and has other short-term savings they can access in an emergency. 4. Boost other savings  After someone has claimed Universal Credit or Working Tax Credit, once their earned income resumes and is over 617.73 per month they become eligible to join the Help to Save scheme. This enables regular savings of up to 50 per month to be topped up with a 50p bonus for every 1 saved. The tax-free bonus of up to 1,200 is added to the individuals savings over a four-year period with access to the savings allowed. Providing regular financial support may enable those whose savings have been ravaged during a period out of work to rebuild them with the help of this subsidy. 5. Prioritise other debts over student loans  Parents who themselves had a free education often worry about their childrens student debt, but paying this off early is unlikely to be beneficial to most graduates. Student debt does not work like other loans but is really a graduate tax. Those with earnings below 27,295 with a post-2012 loan pay nothing back and then pay 9 per cent of their earnings above this, regardless of the amount borrowed. Their earnings also determine the interest rate paid, which is lower when earnings are low. Graduates with a pre-2012 loan start paying 9 per cent of income over 19,895 a year but their interest rate is linked to the Bank of England base rate, so at 1.1 per cent is very low cost. The Institute for Fiscal Studies estimates that 73 per cent of graduates will not pay back the whole of their loan, as any balance is written off after 30 years. This makes repaying student debt early one of the least effective ways of supporting children or grandchildren, and repaying other debts should be prioritised ahead of this.