8th December 2017
PENSION FREEDOMS – STAY INFORMED TO MAKE THE RIGHT CHOICES
The pensions landscape has undergone a complete overhaul since the introduction of the ‘new’ pension legislation in 2015. However, it hasn’t all been plain sailing. Amid fears that some pension savers are making poor and uninformed choices, MPs on the Work and Pensions Committee have launched a wide-ranging review into the retirement income market.
Scams a major concern
A major concern has been the amount of money lost to pension scams. Police figures show that about £43m has been unwittingly paid over to fraudsters. Bogus investments and pension-liberation scams with extortionate charges are just two examples of how people have been conned into parting with their money.
The Financial Conduct Authority has found that taking cash before the age of 65 is becoming increasingly prevalent, with most choosing to take lump-sums rather than opting for a regular income. The concern here is that these people may be risking their future financial security, could run out of money in later life, and may also face higher-than-necessary tax bills by adopting this approach.
The committee is also looking at ways of encouraging pension savers to take advice before taking decisions on their pension pot, to ensure they get the best value from their savings. Without advice, it can be particularly difficult for those who aren’t used to dealing with the complexities of pension and retirement planning to make the right choices. Many are unaware that they have the right to shop around, and don’t automatically have to take the pension option offered by their current pension provider. When choosing pension drawdown, for instance, it’s particularly important not to take too much cash too soon, as that could mean risking running out of cash later in retirement.
Choices on offer
Those retiring other than with a defined benefit (final salary) pension face several choices. They can choose to keep their pension pot invested and draw cash from it, take a lump sum of cash out of it, or even withdraw the whole lot. They can still purchase an annuity that provides a regular guaranteed payment for life.
Each option comes with its own benefits and drawbacks, and there’s also taxation to consider and the need to work out how to make your pension pot last throughout retirement.
So, if you would like some in-depth professional advice to help you make the best use of your retirement savings, then please get in touch.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
ARE YOU SAVING ENOUGH FOR RETIREMENT?
It’s estimated that people aged 45 to 54 spend more time planning their summer holidays than they do planning their pension1. However, if you want to be able to enjoy holidays in retirement, then you’ll need to have saved sufficient to be able to afford them.
The common perception is that you’ll need between half and two-thirds of the final salary you received when you were working, after tax, to maintain your lifestyle in retirement. The consumer champion Which? recently revealed that a retired couple need an income of around £18,000 a year to cover their basic living costs. To enjoy extras like holidays, they need around £26,000.
When thinking about retirement, many people find it helpful to draw up a budget that includes all their sources of income, such as any investments and savings as well as pension income, and covers living expenses and includes the type of holidays and leisure pursuits they want to enjoy when they have more free time. Don’t underestimate how much you need to save to provide the level of income you need. If you’re looking to achieve an income of £26,000 a year at retirement you will probably need to have a pension pot of over £500,000 when you retire, much more if you intend retiring at 55.
How to prepare for retirement
It’s wise not to place too much reliance on the state pension. It was never designed to be anything more than a safety net, and the age at which you can claim it is being pushed back further and further. The government recently announced that it will rise from 67 to 68 in 2037–39, seven years earlier than planned.
Ideally, everyone should have their own pension plan in place. If you’re eligible to join a workplace pension scheme, you should consider doing so as soon as possible, as employer contributions will help towards building up your pension pot. If you’re self-employed, you won’t benefit from employer contributions, so it’s even more important to start saving into your own personal pension plan. Don’t forget that tax relief is available on pension contributions.
It’s not always easy to know exactly how much you’ll need to put away to ensure you’re on track to get a reasonable income when you retire. That’s where taking financial advice really pays. We can help you put in place plans to help make your retirement a financially comfortable time.
If you’re making plans for your retirement and would like some professional advice, then please get in touch.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
1LV, 2017
FINANCIAL MARKETS – A YEAR OF TWO HALVES?
This year has been interesting, but what lies ahead for investors over the next few months? Experience has taught us to expect the unexpected, as many investors are becoming used to a wide variety of financial, economic and political factors and learning to look through the ‘noise’ to focus on what really matters. Recent political events have further exemplified the difficulty of investing on the basis of prediction. As global growth becomes self-sustaining and policymakers are presented with difficult decisions, the risk of political upset disrupting markets remains.
What we do know is that market volatility will continue and pockets of value exist, which makes asset allocation a prime tool when planning your portfolio. What really matters is identifying your attitude to risk, selecting suitable investments in line with your risk and objectives and having conviction in these decisions.
Rule Britannia?
With a backdrop of modest global growth, clouded by the added complication of Brexit negotiations, there are mixed signals of growth for the UK. Theresa May outlined plans for a transition period after Brexit, telling EU leaders there is a shared responsibility to make Brexit work “smoothly”. Frontline negotiations seem to be making little progress and the clock is ticking. Brexit remains a long-term threat. Weaker sterling has been the main driver of UK blue chip companies with high overseas earnings and benefiting those industries which export services and goods.
Over the water
On the continent, with 17 consecutive quarters of growth in the bag, there is no longer a requirement for emergency monetary policy settings. The European Central Bank (ECB) is thinking about unwinding its quantitative easing programme, although they are approaching with caution.
The rate of US economic growth picked up steam in the summer. While stock market valuations are full, equities may have further to go as a result of the improved global economic conditions, which are enhancing profit growth. Although political uncertainty still weighs, the improving macroeconomic environment can feed corporate profits as the third quarter earnings season gets underway. The Federal Reserve has announced that it will begin to reduce a portion of the investments it made to boost the US economy following the financial crisis.
Opportunities ahoy
With global economies finding some momentum and the hint of normalised economic policy on the horizon, investment opportunities exist. As traditional macro concerns return to the fore, portfolio diversity holds the key to approaching your investments and managing risk. Spreading your money across different asset classes and geographic regions is sensible, especially for UK-based investors who are likely to see further sterling weakness.
If you’re making plans for your retirement and would like some professional advice, then please get in touch.
