Personal finance -
How to financially plan for a compensation award
Being awarded financial compensation can be life-changing, but it often follows a long and emotional journey. Our Senior Wealth Planner Gary Jasper breaks down how planning can reduce anxiety and ensure a large payout has the greatest impact.
Whether the result of a personal injury, clinical negligence, or other hardship, a compensation payout may bring closure, but also new responsibilities and decisions.
There have been several prominent cases in the past few years that have resulted in significant compensation for thousands of people, such as the Post Office and infected blood scandals. But compensation cases vary, and everyone’s situation is unique, so tailored advice is essential.
We understand that the relief of receiving a compensation award can quickly be replaced with apprehension, particularly when future financial demands on the payout may be unknown. Our financial planners work with clients after a claim to understand their needs and how best to meet those needs over the long term.
This guide aims to help you consider how to plan effectively, and where expert support can make a difference.
Give yourself the space to find trusted support
It is natural to feel overwhelmed. Give yourself time to reflect and, where needed, involve someone you trust to support you. Engaging with a specialist financial adviser early on can ease this process and help you avoid costly mistakes.
Understand the nature of the award
Finally receiving compensation may feel like closure to a difficult process, but the next stage of financial planning can be intimidating.
A simple way to get started is to understand what the award is intended for, such as:
- Past losses – lost earnings or prior care costs
- Future needs – including housing, therapies, or equipment
- General damages – for pain, suffering, or lifestyle changes.
This can allow you to start segmenting a payout into buckets (either psychologically or practically) before working out how each part is managed and protected.
Build a cash flow plan
A detailed cash flow forecast brings clarity and reassurance. You might want to consider working with someone who has experience creating these plans, like a financial or wealth planner. It shows how your financial position may evolve, based on:
- Expected living costs and care needs
- Inflation and interest rates
- Future one-off costs (e.g. property adaptations or private healthcare)
- Debt repayment, such as high-interest loans
- Any income you may receive.
This provides a visual overview of how long the funds may last and helps identify gaps or opportunities.
Keeping a payout as cash can feel safe and secure, but it could be detrimental in the long-term as inflation erodes its value.
A cash flow plan may reveal the need to take some risks to protect your money from inflation. It is important to work with a planner who can help you understand those risks, which often means investing to grow your money over the long term.
Explore suitable planning solutions
The right solutions depend on your needs, goals, and preferences. Examples include:
| Planning objective | Possible solution | How it can help |
|---|---|---|
| Protecting means-tested benefits | Personal injury trust | Keeps funds outside of benefit assessments |
| Providing a consistent income | Annuity or phased withdrawals | Delivers regular payments tailored to lifestyle or care needs |
| Growing a pot of money responsibly over time | Work with an expert who can manage your investments in line with your needs | Invests in line with your risk tolerance to ensure compensation is not eaten away by inflation |
| Preparing for changing needs | Insurance or long-term care cover | Offers financial support if health deteriorates |
| Planning for your legacy | Estate and Inheritance Tax (IHT) planning | Allows you to pass on assets to loved ones or causes you care about tax-efficiently |
Case study
Compensation cases can be unique to an individual’s claim, but based on our experience we have created a hypothetical case study to show how our team could support a client who has been awarded a payout.
Sarah, aged 42, received a £2 million settlement after a life-altering accident. She was understandably anxious about managing such a large sum and wanted to make sure it would support her for life.
Working with a specialist at Arbuthnot Latham, she:
- Created a cash flow plan that modelled different care scenarios
- Established a personal injury trust to preserve her benefits
- Used £300,000 to repay debt
- Set aside £300,000 in accessible cash for short-term needs
- Invested £1.4 million to grow over the long term, in a way that matched her values and risk comfort
- Protected her future through a tailored income and estate planning strategy.
With this plan in place, Sarah felt peace of mind and could focus on her recovery and quality of life.
How we can help
At Arbuthnot Latham, we understand the sensitive and complex nature of managing compensation awards. Our experienced wealth planners work closely with clients, their families, and professional representatives to deliver bespoke advice with care and clarity.
We can support you with:
- Personal injury trust arrangements
- Cash flow planning and forecasting
- Investment and income strategies
- IHT and legacy planning
- Working alongside legal teams and deputies
- Ongoing management, including regular reviews.
Our approach is personal, collaborative, and provides sound expertise. If you or someone you care for has received a compensation award and would benefit from a thoughtful and experienced hand, we are here to help.
To learn more or arrange a confidential conversation, please get in touch or read about our wealth planning services.
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Author -
Gary Jasper
Senior Wealth Planner
Gary is an experienced wealth manager with over 25 years of success advising high-net-worth clients on investment and inheritance tax planning. Known for building strong, lasting relationships, he specialises in providing tailored financial advice to meet individual client needs.
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