Barristers and the barriers to long-term saving

It can be hard enough for the average British household to build a long-term savings habit, but barristers often face an even greater set of challenges to their financial planning, says Penny Lovell, Head of Private Client Services at Close Brothers Asset Management

 We are not yet a nation of savers. The average British household saves just around five per cent of income[1] each year. This alone is not enough to prepare for long-term goals such as funding retirement. However, even this effort is primarily dominated by those that that have a regular income to plan around. For those who do not have a consistent monthly pay cheque, such as barristers, long-term saving is even more challenging. But the challenges to financial planning do not end there for barristers. We examine what obstacles they face, and how they can account for these to foster a saving habit that will provide them with longer-term financial security.

Cash flow is a significant consideration for barristers when it comes to setting aside money for the future. 80% of barristers who aren’t’ primarily employed by commercial institutions are self-employed[2]. Paid on a case-by-case basis, inconsistent income can be a real issue, and it is difficult to plan ahead without concrete knowledge of where the next pay check will be coming from, no matter how much that pay check could eventually be. Despite not having regular payments, there are still regular financial commitments they must adhere to: mortgage repayments, school fees and household bills are all likely to be given preference over saving, and make longer-term planning more daunting.

For those pursuing the criminal bar, there are additional financial challenges to consider. When it comes to legal aid, defence and prosecution are publicly funded, leaving barristers at the mercy of cuts and changes to fees. This has been a contentious issue of late, with solicitors and barristers alike boycotting the move to cut the £1.7 billion budget for legal aid in England and Wales. This is, essentially, a pay cut, and has led to mass walk-outs by criminal barristers since the start-of the year.

It is often taken for granted that barristers earn substantial amounts. In fact, few earn large amounts through legal aid (an average of £25,000[3]) and in any case, nowhere near the salaries of those employed by institutions. Furthermore, those who rise up to QC level can even expect to see their income fall temporarily when they do achieve promotion, as they may be replaced by lawyers who can do the same job for less money. This is not to mention junior legal aid barristers, who – on top of law school debt – receive little more than the minimum wage. All of this impacts how much barristers feel they should be setting aside each month, and indeed, highlights the impact that their finances face through legal aid cuts.

Barristers also face substantial business costs. Beyond daily expenses and bills, barristers must pay their chambers a percentage of their earnings in rent – typically 20% – cover day-to-day costs such as travel and contribute towards the chambers running and overheads. Of course, this all eats into the money they can eventually take home, and money sliced off income for tenancy fees will often by necessity be prioritised over long-term saving.

Understanding of complex tax regulations can also affect barrister’s financial planning, especially following the introduction of the new cash basis rules. Prior to April 2013, barristers in their first seven years of practice did not have to pay tax on their aged debts, and after this came a transition to the earnings basis (where a proportion of aged debtors are taken into account). However, a simplification of the rules means only income received and expenses paid are taken into account. Barristers must be aware of whether or not they are entitled to use this new system, as it depends on individual circumstance.

So what can barristers do to save for the future, when all these factors are taken into account?

The first step is to build awareness. Barristers must understand their different financial stresses, cash flow squeezes and even tax commitments before a sustainable plan can be built. A financial adviser can help here.

Once this has been established, the next step, with your adviser, is to identify a long-term goal, then put into place an achievable – and flexible – plan to achieve this. Crucially, this will also help to identify the periods when cash flow will be stretched, so that long-term saving is not compromised.

The right financial adviser will also help make the most of a barrister’s irregular income. This will include tax-planning measures, and financial product selection (such as mortgages) for their circumstances. This should also include investment planning. Ensuring that a non-regular income is well managed so that it can grow over time, and work that little bit harder, is vital.

Yes, barristers face an array of financial planning challenges, but there is no reason why they should not reach retirement having met their financial goals, making the most of later life.

[1] Melbourne Mercer Global Pensions Index (MMGPI), 2015

[2] The Bar Council, 2014

[3] Law Society president Lucy Scott-Moncrieff, 2013

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