Minimum pension contributions rise: what do you lose by opting out?

What does £98,000 mean to you?

For some, that’s the deposit on a new house, for others it’s financial security and the knowledge that they will not have to worry about their income in retirement.

For young people thinking about opting out of a Workplace Pension as a result of the minimum contribution increases, it’s the amount they sacrifice for the sake of having an extra £50 in their monthly pay.

Minimum contribution rises

During the rollout phase of automatic enrolment, the minimum contributions for both employers and employees have been 1% of the employee’s qualifying earnings.

‘Qualifying earnings’ is the value of annual earnings between £5,876 and £45,000.

From April 2018, those minimum contributions rise to 3% from the employee and 2% from the employer, with further rises to 5% employee and 3% employer contributions, due in April 2019.

For some, giving up an additional 2% of your earnings might sound like a lot, but the long-term benefits of remaining in your Workplace Pension will far outweigh the small amounts you sacrifice in the short-term.

To put it another way, if your boss told you, you were getting a 2% pay cut, would you walk out?

The effects of opting out

By opting out after being automatically enrolled, you effectively turn away free money which will support your lifestyle when you retire. Money you put into your fund is topped up with both contributions from your employer and 20% government tax relief.

The average annual income in 2017, according to the Office for National Statistics (ONS), was £28,600. From these earnings, your monthly contribution is £45, your employer puts in £30 and tax relief tops it up by a further £14, for a total of £94 each month. For a 22-year-old, that could mean an eventual retirement fund of £98,300 after 40 years, assuming an average annual rate of return of 2.4%. Of course, this is not guaranteed; it could be higher or lower.

Furthermore, when your contributions rise again next year, your final pension pot will be higher. (Calculated using Aviva Retirement Planner)

By opting out, you lose all of this.

What happens if you have no Personal or Workplace Pensions?

To qualify for any State Pension, you must have at least 10 qualifying years on your National Insurance record. For the Full State Pension, 35 years are needed. These are years in which you have paid your National Insurance in full or received credits alongside state benefits. You can check your National Insurance Record and make voluntary contributions to reach this point by clicking here.

The Full State Pension is currently £155.60 per week, or £8,091 each year. You can see what you will get by clicking here.

Without any additional pension savings, your lifestyle on that amount is likely to be very reserved. With no additional income you face the risk of:

  • Being unable to make mortgage payments and potentially losing your home
  • Getting into debt
  • Being unable to leave a legacy for your loved ones
  • Having to borrow money from friends and family to survive
  • Being unable to afford the right healthcare or accommodation in later life

What will auto enrolment provide?

The minimum pension contributions on a £28,600 annual income could leave you with a retirement fund of £98,300 which could be used to buy a guaranteed income of £520 per month (Source: Aviva Pension Annuity calculator), or £6,240.35 annually. Add that to a full state pension, and you start to see a more manageable income.

However, experts recommend that you should be saving between 12% and 15% of your salary, to create a retirement income which will allow your current lifestyle to continue.

For a 22-year-old earning the same average income, 15% contributions would amount to a retirement fund of £447,000 (assuming an average annual rate of return of 2.4%) by the age of 62. This could be used to buy a guaranteed, pre-tax income of around £27,789 per year, or £2,315 per month. (Source: Aviva Pension Annuity Calculator). Both are substantial incomes, especially when added to a Full State Pension.

Making the most of your pension

Hopefully we’ve established the importance of continuing to save for retirement. Without it, retirement does not seem to be as enjoyable or carefree as you deserve it to be after many years of working hard.

So, how can you make the most of the money you have now, to ensure that you have the income you need, later?

Save it in the right place: Some people are tempted to opt out of their Workplace Pension and ‘take back’ control of their investments by contributing to a Personal Pension instead. Unfortunately, by doing so, they lose both their employer contribution and the 20% tax relief, both of which have a significant impact on the overall size of a pension fund.

If you have extra money available to save for retirement, you are able to make ad-hoc contributions to most Workplace Pensions by contacting the scheme provider or your workplace’s HR department. By investing this additional money in the same place, you both make it easier to access in later life and benefit from a tax-efficient fund.

Cut back on non-essentials: Don’t give up everything you love but do analyse your spending to see if there are any areas where you could make small sacrifices in order to contribute some extra cash to your pension each month.

Take financial advice: A financial adviser will be able to give you tailored and structured advice which meets your needs as an individual and makes sure that your pension is in the best position to provide you with the retirement income you desire.

To discuss your retirement planning in more detail, get in touch.

Four ways Pension Freedoms has changed retirement

The way pensions are accessed at the beginning of retirement has changed since the introduction of Pension Freedoms in 2015. The reforms mean that those aged 55 and over are less restricted in their ability to access their retirement fund.

These options mean that those nearing pension age have been faced with a range of options and decisions, which have affected the pensions landscape both positively and negatively.

The four main changes to take place at the point of retirement are:

1. Cash is accessed differently

Since the reforms were introduced, more than half (55%) of pots accessed have been withdrawn in full, but less than a fifth (17%) of those who have accessed their pension say they have taken the full amount. Either way, more people are choosing to take all their retirement income in one transaction, simply because they can.

Withdrawing the full amount becomes more likely for people who have smaller pension funds, as 88% of those which are fully withdrawn held less than £30,000. (Source: Financial Conduct Authority (FCA))

2. Drawdown has increased in popularity

Studies have shown that 30% of pension funds accessed since 2015 have used Flexi-access Drawdown while just 12% have been used to purchase an Annuity. Sales of Annuities fell by 16% in 2017 (source: FCA). Flexi-access Drawdown is not necessarily the wrong way to access retirement income, but it does come with opportunities and threats which mean that your capital will need to be managed more carefully than an Annuity.

The ability to take large lump sums from your pension, may seem tempting, but it is important to keep the golden rule in mind: just because you can, doesn’t necessarily mean that you should. Entering Flexi-Access Drawdown offers more flexible access to your retirement income than an Annuity, but it also brings an increased risk of spending too much, too soon and running out of money in later life.

3. Pensioner uncertainty has increased

In 2017, Prudential reported that two thirds (67%) of over 55s were confused or uncertain about what Pension Freedoms means for them; even though two years had passed since the reforms. The same report showed a severe lack of understanding of the new pension rules with many in the dark about:

  • No longer having to buy an Annuity (42%)
  • Potential taxation of income taken from pensions (52%)
  • Being able to access the whole fund from 55 (53%)
  • Transferring Workplace Pensions into a Personal Pension fund (70%)
  • Potentially needing to complete a self-assessment tax form in retirement (73%)
  • Leaving pension funds as inheritance (75%)

Recent research shows that 25% of people do not recall how they accessed their pension pot, showing that, even now, three years on from the Pension Reforms, there is still an element of uncertainty and lack of engagement among those who are most affected by them.

4. Pension scams have increased

According to research from Aviva, pension cold calls have increased by 2.7 million since the introduction of Pension Freedoms. Between 2014 and 2017, it is estimated that pensioners have lost a total of £43 million to scammers, with each victim losing an average of £15,000 each. (Source:

Recently, legislation has been introduced which will mean that cold calls relating to pensions are illegal and those carrying them out could be subject to a £500,000 fine. However, this will not stop criminals from targeting pensioners by other means so, post, email and even home visits should be treated with caution.

Remember the golden rule of cold callers: If it sounds too good to be true, it usually is.

Pension Freedoms has opened the door to many possibilities for those reaching pension age. But it has also brought confusion and an opportunity for vulnerable people to be taken advantage of.

For many, the reforms have brought good news and have enabled them to take control of their pensions, whilst choosing how they use their money more flexibly. However, it is always sensible to seek financial advice before making any permanent decisions.

To discuss your retirement planning and the best use of your pension, get in touch.

Are you in a financially compatible relationship? …And does it matter?

Almost two thirds (60%) of people believe that financial compatibility is one of the most important factors in a successful relationship, according to Scottish Widows.

But what is financial compatibility?

Like any part of a relationship, financial compatibility is multi-faceted and will look different for every couple. However, the research states that incompatibility “includes a lack of shared financial aspirations and different attitudes to spending and saving.”

Signs of financial incompatibility

You may be in a financially mismatched relationship if:

  • You wish your partner was better at saving

20% of people feel this way and it could be a sign of differing priorities where money is involved. It may also signify that you see the future differently to one another, if one of you values spending over saving, you’re likely to feel the friction.

  • You feel like your savings have been impacted by your partner’s spending

Being unable to reach your financial targets can be frustrating, especially if the reason is your significant other. This feeling is shared by more than a quarter (27%) of people and rises to 41% for couples who are working toward living together.

  • You have a lack of shared financial goals

The feeling of taking different approaches to finances can easily put a wedge between partners. 17% of people have felt that they and their partner have different financial goals and that their relationship has been strained as a result.

Communication could be the key

A lack of communication and shared planning could be the main reason why so many people feel that their partner’s attitude towards finances is so different from their own.

The research shows that people who form relationships in later life are more likely to discuss finances from the beginning, with 34% of over-55s doing so, compared to just 8% of 18-to-34-year-olds. Furthermore:

  • 11% of people do not tell their partner how much they earn
  • 57% of people don’t know how much their partner has in the bank
  • 25% of married people admit to keeping money separate from their spouse’s

So, more communication is necessary.

Should financial incompatibility be a deal breaker?

Not necessarily.

However, it may simply be down to a need to talk more openly and communicate with one another. It is nonsensical to expect your financial aspirations to be perfectly aligned if you have never sat down and discussed how you think money should be treated.

Catherine Stewart, retirement expert at Scottish Widows, said:

“It’s important that couples – at any age – have open and honest conversations about their finances to make sure they have an understanding of their individual longer term financial goals.

“Some people may be more inclined to focus financial conversations on big life events like buying a house, having a family, or taking time out from work to travel together. Life after retirement should also be on this list; having a good understanding – early on – of each other’s retirement goals will help to ensure couples can work towards a realistic joint financial plan.”

A meeting of minds

Creating a joint financial plan is an important step in any relationship. It could be signal of commitment, or that big changes are planned. Either way, the simple act of talking about your finances, both as individuals and as a couple, will strengthen your bond and give you the opportunity to address any differences of opinion.

Speaking to a financial planner or adviser as a couple will give you the opportunity to combine your goals with professional insight into the strategies and methods available to help you to achieve them.

For more information, or to speak to a financial planner or adviser, get in touch.

Knowing your goals: How to plan your retirement around the things that matter to you

Research from Scottish Widows has shown that the top priorities for those planning for retirement, are generating an income (41%), and having flexibility over that money (40%).

Other goals came in much lower, with the ability to pass on benefits, such as an income or lump sum, to a spouse or dependent at 10% and control over investments at just 9%.

However, it is unlikely that the priorities you have for your retirement will be the same as everyone else. So, how can you identify your retirement aims, and further still, achieve them?

Understanding your retirement priorities

We can’t tell you here how to define your aims for retirement, but we can tell you that they should be:

  • Personal

Your priorities should reflect the things that are most important to you, not necessarily your family. If you have a desired lifestyle in mind, generating enough income to support that will be high on your list, much like freeing up time to spend with loved ones will be important to some. Don’t be afraid to delve deep and work toward a retirement that truly reflects your aspirations.

  • Adaptable

Your retirement priorities are likely to be flexible and can change as you go through life. For example, whilst you may currently be intent on leaving money behind for your children, that vision may expand to include grandchildren and great-grandchildren eventually. It doesn’t matter how many times you re-evaluate your plan, as long as you adjust it accordingly, and remain on track for a successful and financially stable retirement.

  • Realistic

If you don’t have a high salary and have not been putting large amounts into your pension fund during your working years, it is unlikely that you will be able to retire on an income which is equal to what you have during working life. But, you probably shouldn’t aim for that as you probably don’t need it.

With financial planning, you can set yourself attainable goals that will make you feel just as accomplished and ensure that you have an enjoyable and affordable retirement.

Planning for a retirement that suits you

Retirement planning can be a lengthy process but, with the help of a financial adviser or planner, you should find that it is rewarding and worth it for that added peace of mind, so you will not have to worry about being able to afford to live during retirement. Retirement planning involves:

  • Analysing where you are now and where you aim to be

Your current position includes all forms of savings, investments and pensions which will be used to provide you with an income in retirement.

How much you will need, will depend on the annual income you need to support your desired lifestyle, as well as your estimated life expectancy.

You can find all of this out by using a retirement calculator, like this one.

  • Plugging any gaps

If your current savings habits are unlikely to provide you with the income you need in retirement, you have three options:

  1. Accept that you will need to live a more reserved lifestyle, on a budget
  2. Continue working, even if it is part-time, or as a consultant, to continue earning and delay full retirement
  3. Start putting more money into your pension funds to boost the amount you will be able to access later.
  • Accessing your pension

Since the introduction of Pension Freedoms in 2015, the options surrounding your retirement income have grown, meaning that you have more control from the age of 55.

Your retirement income is likely to be formed of two or more of:

  • State Pension
  • Workplace pension(s)
  • Personal pension
  • Savings
  • Income from property and investments

It is up to you to decide how to organise those to meet your retirement needs.

Fixed and variable income

The difference might seem straight-forward and self-explanatory; however, it is worth reiterating that;

  • A fixed income, such as those provided by Defined Benefit schemes, and Annuity or the State Pension gives you a guaranteed, often inflation-proofed annual income which will be provided for the rest of your life.
  • A variable income, available via Flexi-access Drawdown, is not fixed, nor is it guaranteed, but it does mean that you can withdraw money as and when it is needed. Though using this as your only income will increase the likelihood of spending too much and running out of money in later life.

Both options have advantages and disadvantages, and the level of popularity between the two has changed dramatically since the pension reforms. FCA research shows that a third (30%) of pensions accessed since 2015 have been transferred into drawdown, while just 12% have been taken as an Annuity.

However, both play a key role in meeting your retirement goals.

It is important to remember that combining the two options is possible and that you do not have to make an either/or decision when you retire. Rather, it is better to do so. A fixed income acts as the foundation; paying your running costs, such as bills, mortgage and living costs. Meanwhile, a variable income can be used to cover other costs, whether planned or unexpected, which keeps your finances secure and means that you will be able to support yourself throughout retirement.

The role of financial planning

A financial planner will be able to help you to define your goals in a way which turns them into achievable targets. They will then work with you to find methods and routes to get you from your current position, to living your ideal retirement lifestyle, using what you have currently and building on it.

To discuss how financial planning could help you to achieve your retirement dreams, get in touch.

Knowledge is power: Do you know what your pension is worth?

According to research from the Financial Conduct Authority (FCA), most adults are not paying enough attention to their pension, leading to difficulties in retirement.

Pause for thought

The report shows that many people are not setting aside the time to think about their retirement income, with:

  • 75% admitting they have either not considered their retirement finances at all, or do not give it much thought
  • 45% only stopping to consider their pension provisions in the two years before they plan to retire
  • Many people only reviewing their pension when it is worth more than £20,000
  • Over half (53%) not reviewing their pension fund within the past year

The consequences of ignorance

31% of all adults do not have any pension in addition to the State Pension. Meanwhile, more than a quarter (26%) of over-55s, do not know how much they have in their pension.

Among those with Defined Contribution pensions (for example, a stakeholder pension, personal pension, SIPP and many workplace pensions):

  • 81% have not taken the time to calculate how much they need to pay in now, to ensure a reasonable living standard in retirement
  • 71% do not know what charges they are paying
  • 32% do not know how much their pension is worth
  • 34% report “little or no” trust in their provider

This lack of understanding and trust is likely to be partially due to the absence of engagement with pension providers and the services they offer.

Do you need to know?

In short, yes.

Financial planning for retirement has three key parts:

  1. Defining your goals, and how much retirement income you will need to meet them
  2. Knowing what your pensions, as well as other savings and investments will provide
  3. Finding ways to bridge any gaps between the two

Without careful retirement planning, you put yourself in danger of:

  • Running out of money
  • Not having enough to provide a liveable income
  • Missing mortgage payments, if you have a mortgage outstanding, and potentially losing your home
  • Being unable to leave the financial legacy you want for your loved ones
  • Not enjoying the retirement lifestyle you want

How should you review your retirement planning?

1.Make sure you include all your pensions

Before reviewing your retirement plans, make sure that you have identified all pensions you have paid into. If you think you may have a pension elsewhere that you can’t find, you can trace the contact details of the provider through the government’s pension tracking service here. Alternatively, why not let us do the hard work for you?

2. Check your State Pension

To qualify for a Full State Pension, you will have to have paid your National Insurance or have received credits for 35 ‘qualifying years’. You can check your National Insurance Record here.

To find out what you can expect from your State pension, use the forecasting tool here.

3. Review your workplace pension(s)

How you do this will depend on the type of pension you have.

If you have a Defined Contribution Pension, you will have to contact your provider or your employer’s HR department. However, if you are in a Defined Benefit, or Final Salary scheme, you will need to contact the trustees directly. Alternatively, your financial adviser or planner will be able to find out this information on your behalf.

Gather as much information as you can, but the key questions are:

  • How much is currently in it?
  • How much do you and your employer contribute?
  • How much are you likely to have available when you retire, if you continue without increasing your contributions?

4. Include any additional savings and investments you plan to use for retirement

If you have savings and investments which have not yet found a use, you may want to include them in your retirement capital, to boost the income available to you. It is important to take stock of all your resources, so that you know what you have available and whether you are on the right track to meet your retirement goals.

Next steps

From this point, you can begin to take steps to bridge any gaps between your current situation and the lifestyle you want to achieve by the time you finish working. To do so, you have three options:

Lower your expectations: Your first, and least favourable option is to concede that you will have less money in retirement than you planned, and simply accept that you will have to make some sacrifices in your lifestyle to meet your budget.

Put more in: You could increase the amount you put into your pension each month to boost your retirement fund and give yourself a bigger income when you stop working.

Extend your income: If you are still working, you may want to consider continuing to do so until you have a sufficient pension fund to retire and enjoy the lifestyle you desire. Remember, if you do continue to work, you can delay your State Pension and increase the income you will receive when you access it later.

Finally, you should seek independent financial advice to make sure that you are on the right track to meet your retirement objectives. So, when you’re ready, feel free to get in touch.

seven changes in 2018

Seven changes you need to know about in 2018

As we head into 2018, with a new financial year a few months away, the government is preparing to introduce several changes. These will come into effect in April, and it is likely that you will be affected by at least one of them. Being prepared is the key to making the most of the changes and deadlines that are approaching.

To ensure that you are informed about the upcoming changes to allowances, savings and pensions, here are the seven biggest things you need to know about.

1. Higher Lifetime Allowance,

As inflation hit 3% in the second half of 2017, Philip Hammond announced in the Autumn Budget that the Lifetime Allowance would rise accordingly, from £1 million to £1.03 million.

The Lifetime Allowance dictates how much you can hold in your pension before tax charges are potentially applied. For example;

  • 25% lifetime allowance charge applies to funds in excess of the Lifetime Allowance if they are placed in drawdown or used for annuity purchase
  • 55% Lifetime Allowance charge applies to excess funds if they are withdrawn as lump sums

2. Increased Personal Allowance

The Personal Allowance is the income you can receive each year before starting to pay Income Tax. It’s currently £11,500 but will be increasing to £11,850 in April. That means that, during the financial year 2018/19, you can benefit from an extra £350 tax-free income.

The government has previously announced that they are aiming to raise personal allowance to £12,500 by 2020.

3. Dividend Allowance decrease

Although the change was announced in early 2017, the dividend tax-free allowance will fall from £5,000 to £2,000 at the beginning of the next tax year. This means that business owners and contractors who work for a limited company structure will pay tax on annual dividends of more than £2,000.

 4. Auto-enrolment contributions increase

Automatic enrolment for all eligible employees into workplace pensions reaches its final stages for existing employers this year. In addition, the minimum contributions made by both employees and employers will rise.

Currently, both parties are required to contribute 1% of qualified earnings. However, from April, this will increase to a minimum of  2% from the employer and 3% from the employee.  And will rise once again in April 2019 to 3% for employers and 8% in total.

5. Help to Buy ISA / Lifetime ISA transfer deadline

Any deposits made into a Help to Buy ISA before April 2017 can be transferred into a Lifetime ISA (LISA), without impacting the annual Lifetime ISA allowance until 5th April 2018. This could give you a double bonus. You can put twice as much into your LISA this year, and still receive the 25% bonus when you buy a house or retire.

 6. Basic State Pension increase

Each year, the Basic State Pension increases in line with whichever is higher out of:

  • The rate of Inflation
  • Average Earnings growth
  • 5%

This is known as the triple lock system.

In October 2017, inflation reached 3% and set the bar for the State Pension’s 2018 rise.

If you already receive a State Pension, this is good news. Those people entitled to a full basic State Pension will now receive an extra £4.80 per week.

 7. Higher Income Tax rates in Scotland.

In the 2017/18 tax year, Scottish Income Tax rates for earned income are:

  • Up to £11,500: Tax-free Personal Allowance
  • £11,501 to £43,000: 20%
  • £43,001 to £150,000: 40%
  • over £150,000: 45%

However, from April 2018, proposals have been made to change them to:

  • Up to £11,850: Tax-free Personal Allowance
  • £11,850-£13,850: 19%
  • £13,850-£24,000: 20%
  • £24,000-£44,273: 21%
  • £44,273-£150,000: 41%
  • Above £150,000: 46%

This is quite a difference which will affect Scottish taxpayers at all income levels.

Making the most of the 2018/19 financial year

A lot of changes are happening at the beginning of the new financial year. So, make sure that you are informed and able to maintain your financial security when they come into effect. The three main ways to stay on top of your finances are:

  1. Staying informed
  2. Knowing how the changes affect you
  3. Seeking advice

For more information about how the new financial year could affect you, contact us.

62% of adults don’t understand inflation; here’s our quick explainer

62% of adults don’t understand inflation; here’s our quick explainer

Only 38% of UK adults know what inflation is, according to research from The Organisation for Economic Cooperation and Development (OECD). The data also shows that adults in at least 14 nations have a better understanding of inflation than Brits.

To help put this situation right, we’ve created a short explainer covering the main points. However, we always encourage you to read further, learn more and seek professional help when you need it.

What is inflation?

Put simply, inflation is the rising cost of goods and services. Over time, the products that we buy will go up in price. Inflation is unavoidable, in fact, steady and manageable inflation is beneficial to the economy, but it is the rate at which it increases which affects us most. That’s why the Bank of England (BoE) has a target of keeping inflation at 2%. With inflation currently at 3.1%, it has taken action by increasing interest rates, to try to pull the rate of inflation back to target.

Inflation is measured and reported most widely through the Consumer Price Index (CPI), which shows changes in the average price of goods and services across the UK. Whilst it does not reflect individual markets, it shows the pace at which household expenditure rises.

The Office for National Statistics (ONS) recommends thinking of the CPI in terms of a shopping basket. The basket represents the typical goods and services which households may spend money on. It includes all expenses, from basic food to annual holidays and leisure activities.

As a whole, this basket will have a monetary value, calculated using the average prices for those products. However, the cost of the items will change over time and the basket value will rise accordingly.

The effects of inflation

As inflation rises:

  • The cost of buying essentials rises
  • Interest rates may increase
  • The buying power of both your capital and income are decreased
  • Making big purchases becomes more difficult
  • Your savings are de-valued

When inflation rates are high, almost everyone is affected in some way. However, different groups see different outcomes, for example:

Savers: If inflation is consistently higher than interest rates, savings will decrease in real term value. This means that, even though savings accounts are designed to minimise risk, savers will see a loss of capital value anyway.

Annuity holders: Annuities are designed to pay a guaranteed income for life. There are two types; level and Index-linked. Level Annuities do not rise year on year, therefore, those people with this product could find themselves struggling to keep up with the cost of living as the years pass.

Employees: Without pay rises which match inflation, employees will see their buying power decrease over time.

Consumers: As inflation pushes up the price of goods and services, your buying power reduces. To illustrate:

If you deposit £1,000 at a time when a new television costs £200, you could buy five.

A year later, the interest rate is 1%, but inflation is at 2%.

Your savings are now worth £1,010, but a television costs £240. You can only afford four televisions, even though your savings have increased in value, the purchasing power has been affected severely.

Similarly, household income is worth less over time. Although inflation has a constant effect, with the price of living steadily rising at all times, pay rises are not as frequent. ONS data shows that the average weekly earnings across the UK are rising over time. But in real terms, salaried and hourly-wage incomes are not changing.

The same is true for pensioners who have purchased an Annuity; as they provide a set income each month, which cannot be altered and is not protected against inflation.

For both workers and pensioners, their set monthly income loses value, due to the increased cost of living. That means that any expendable income which may have been put toward savings will gradually decrease.

Offsetting the effects

It is not easy to combat the effects of inflation and it is an ongoing battle. However, there are a few options available to help you to protect your income and savings from erosion:

Savings accounts: Interest rates vary throughout the savings account market. There are products available which offer returns that are close to the rate of inflation. Although it is unlikely that you will find rates which are equal to, or above the CPI.

Budgeting effectively: Whilst the cost of living is increasing overall, it is always possible to shop more effectively. Looking for offers, trying different brands and comparing products by price-for-weight, rather than shelf price are all great ways to save money on essentials.

Save money where possible: If your income is squeezed, putting money aside might be your last priority. But even choosing to take a packed lunch to work, rather than buying a meal deal every day can give you an extra pound or two to put away for a special occasion.

Take financial advice: Independent Financial Advisers are experienced in helping people from all walks of life and backgrounds to make the most of their income. They can help you to find the right savings account, manage your budget more effectively and plan for your future.

To discuss how you can better position yourself financially, contact us.

pension freedoms ignorance ins't bliss

Pension Freedoms: Ignorance isn’t bliss

“Real knowledge is to know the extent of one’s ignorance.”

Attributed to Chinese philosopher Confucius, this timeless phrase has never been more apt than when applied to the topic of Pension Freedoms.

A new report, from Old Mutual Wealth has revealed that many 50-60-year olds are uninformed about Pension Freedoms, with:

  • 45% not knowing about Pension Freedoms at all, or not knowing how the new rules affect them
  • 37% not knowing how or when they should access Pension Freedoms

Why is knowledge important?

Pension Freedoms are perhaps the biggest revolution to take place in the retirement arena in the past 20 years. Used well, the reform means that you can retire early, in a way which is more flexible and suits your lifestyle.

That freedom has given many people more control over their finances. It means that you can take lump sums from your pension pot for big purchases, or to help loved ones financially, as well as planning ahead to leave larger legacies to your loved ones.

However, the new-found freedoms come with potential dangers and pitfalls. For example, withdrawing too much, too soon could leave you facing financial difficulties later in life.

Current concerns

Research from AJ Bell has shown that some pensioners may run out of money within 12 years, due to three factors:

  • Withdrawing too much each year
  • Underestimating how long they will live
  • Spending money frivolously

44% of over-50s choose to withdraw over 10%, a figure usually considered to be unsustainable, of their pension savings annually. Worryingly, the biggest group of people doing so (57%) are aged 55 to 59. As well as over-withdrawing, more people are taking money without planning for the future, as:

  • 47% take ad-hoc lump sums
  • 35% rely on an income of regular withdrawals

In addition, the same age group (55-59) severely underestimate how long their pension will need to last, with:

  • 51% estimating that their pension will need to last for 20 years or less
  • 24% believing that they will need to make their pension last for less than 10 years

The combination of large withdrawals and a lack of planning for the future means that many people are at risk of running out of money part way through their retirement. According to the Office for National Statistics (ONS), the life expectancy for someone who is currently 55 is:

  • 81 for men
  • 85 for women

That means that pensions may need to last for more than 25 years for both sexes.

Another concern is the reasons behind the withdrawals. Whilst Pension Freedoms means that you can access the whole pension fund for any reason; it doesn’t necessarily mean that you should.

AJ Bell’s research shows that 40% of 55-59-year olds make withdrawals for day-to-day living costs (a pension’s intended purpose). Meanwhile, a quarter (25%) have used Pension Freedoms to make luxury purchases, including holidays and cars.

Using your pension wisely

Pension Freedoms are in place to give you more control over the way you use your pension savings. However, it has never been more important to plan ahead and make sure that you are using them in a way which benefits you both now and in the future.

It might be tempting to withdraw large amounts and go on a spending spree; but that could potentially leave you exposed to financial danger for the rest of your life.

So, how can you use the Pension Freedoms reform to meet your needs?

There are four key points to remember:

Have an open mind: Old Mutual’s research revealed concerns that consumers may be choosing the “path of least resistance” by accepting the drawdown option offered by their pension provider without shopping around. It can be all too easy to stick to what you know and reject any new options out of comfort. But a little research could go a long way toward making the most of your pension savings.

Avoid the threats: Unfortunately, the new rules have inspired a range of new scams and fraud attempts. Stay vigilant and never accept an unsolicited offer. Always verify companies through the Financial Conduct Authority (FCA). Secondly, remember that your pension pot may have to last for 20, 30 or 40 years. Spending too much, too soon could cause you financial difficulty in the future.

Take advantage of the opportunities: taking advantage of pension freedoms could help you retire early, or more flexibly, in a way which suits your preferred lifestyle. It can also help you leave a legacy to younger generations.

Seek advice: Research from Unbiased has shown that people who take financial advice save an average of £98 more each month, which leads to an additional £3,654 in annual retirement income.

For more information on Pension Freedoms and how your retirement could be affected, feel free to contact us.

urgent call from mp's to stop pension scam cold calls

Urgent call from MPs to ban pension scam cold calls

Introducing legislation to ban cold calls from pension scammers has been on the Government’s radar for some time. But now, following a lengthy delay, MPs are calling for action to be taken sooner, rather than later, pushing for the Financial Guidance and Claims Bill to be approved.

What has happened so far?

The Government’s plan to ban cold calling was confirmed by Philip Hammond, during his 2016 Autumn Budget. However, progress in implementing new legislation was slowed down by the 2017 General Election, before seeming to halt altogether.

In August 2017, the Government released an outline of their plans to implement a pensions cold calling ban. However, MPs feel that the progress toward a ban is too slow. In the meantime, millions of calls are being made and thousands are being lost to scammers.

Why is it so important?

Statistics from Action Fraud show that:

  • Victims of pension fraud lost almost £5 million between January and May 2017
  • An estimated £45 million has been taken by pension scammers over just three years
  • During that time, each victim lost an average of £15,000

How the ban will work

The ban on cold calling would prohibit phone calls from businesses, to people they have had no prior dealings with. It is hoped that a ban, and the ensuing publicity, will send a clear message to the people being targeted, that they can simply hang up the phone if they do not recognise the person calling.

The Financial Guidance and Claims Bill refers to:

“(a) suspected inappropriate, misleading or harassing approaches with regard to debt advice, debt management, pension access and claims management services, and (b) suspected dishonest, unfair or unprofessional conduct by those supplying financial services relating to the areas of activity of the single financial guidance body.”

The Bill also broaches the subject of cold calling. It includes a clause instructing the single financial regulatory body to carry out annual assessments of the effects of cold calling on consumer protection. It goes on to instruct the regulatory body to advise the Secretary of State to implement a ban, if that assessment shows a negative impact on consumers.

Currently, this Bill is making its way through the approval process, but it may not reach the final stage – royal ascent – until 2019. Which gives fraudsters more than 12 months to continue to target vulnerable people.

Protecting your pension against fraud

Knowledge is everything if you are being targeted by a pension scam. Knowing who to trust can be difficult, but there are a few things you can do to prepare yourself and outsmart the bad guys:

Know their methods: Cold calling isn’t just unwanted phone calls, fraudsters may try to contact you via post, email or text message. Just because a letter or email looks official does not mean that it is.

Verify their identity: Companies legitimately offering you financial advice, are unlikely to contact you out of the blue, but you can keep yourself safe by asking for company details. All financial advisers are regulated by the Financial Conduct Authority (FCA). Never take financial advice from anyone who isn’t authorised and regulated. You can find out if the company contacting you is authorised here.

Be smart: Many pension scams start by telling you that they can help you to access your pension fund before the age of 55. They can’t. Whilst it might be tempting, remind yourself of the golden rule; if it sounds too good to be true, it usually is.

Talk to people: Community is a great defence against crime. By starting to talk about how pension fraud is carried out, you can help each other and share information which may save you, or your loved ones, large amounts of money.

Report fraud attempts: Report any suspected scams to Action Fraud via phone or using their online fraud reporting system. By reporting criminals, you lessen their chances of tricking someone else.

Always seek unbiased, trusted and independent advice, never accept an unsolicited offer. To discuss your concerns, contact us today.

Seven tips for choosing the right savings account

Seven tips for choosing the right savings account

The Bank of England (BoE) interest rate rise made a splash in the headlines last year. However, the subsequent announcement that inflation continues to increase, and has since hit a six-year high, is one of the biggest causes for concern for savers.

As a result of the rate rise, many banks and building societies have increased their interest rates on both mortgages and savings accounts. Though most have chosen to increase the rates on interest paid to them, by a larger amount than on savings accounts where interest is paid out.

However, with low interest rates and high inflation, it’s never been more important to try to find a savings account which gets as close as possible to maintaining the real value of your capital. Even if it can’t provide a real return, a rate which is close to inflation means that less of your capital is lost to the increasing cost of living.

Here are our seven top tips to help you to identify the best savings account.

1. Define your goals first

Remember when teachers taught you all about S.M.A.R.T targets? Well, you’re finally going to use them ‘in the real world’.

Your savings goals should be:

Specific: How much do you want to save? How much capital do you already have that you need to find a return for?

Measurable: What interest rate do you need to beat inflation?

Achievable: Naming your goal, with reference to what it will provide for you, is a great way to keep yourself motivated.

Realistic: Keep your expectations within the available limits. Don’t plan for high returns while the BoE interest rate is low. If you have already built up capital, do everything realistically possible to maintain the real value.

Time-bound: Work out how long it will take you to reach your goal within realistic boundaries. You can even set yourself milestones along the way using the same calculation.

2. Work hard

The right savings account won’t fall into your lap through luck alone. As American writer and musician, James McBride, famously said:

“You make your own luck by working hard.”

If you want to access the best interest rates and find a product that is suited to your circumstances, you will need to take the time to shop around and get to know the different savings account types available.

This is an ongoing process. For example, if you choose an account with a fixed term, at the end of that term, you will need to find a new home for your savings. Likewise, if you choose an account with a variable rate, you need to monitor the rate as they are likely to be cut.  At the end of the fixed-rate period, you can shop around and ensure that your money is kept in the best place at the time.

3. Look for tax-free returns

Focus on savings accounts which offer the opportunity to collect returns on a tax-free basis. Tax-free products, such as Cash ISAs, mean that you lose less to the taxman, leaving you to keep more of your returns.

Keep your Personal Savings Allowance in mind. For basic-rate taxpayers, this means that you can receive up to £1,000 in interest each year, without incurring tax. For higher rate taxpayers, the limit is £500.

Currently, a Cash ISA is probably a safer bet, as it has been around for decades and is hugely popular. Whereas, the Personal Savings Allowance has only been recently introduced and could be reversed in a future Budget.

Tax-free accounts mean that you can keep more of the interest and earnings from your capital. This will enable you to reach your savings goal faster.

4. Stay safe

The Financial Services Compensation Scheme (FSCS) is in place to protect the money you deposit into a savings account. The FSCS is positioned to compensate deposits lost due to the bank or building society becoming insolvent.

The scheme covers deposits and investment in a wide range of products, including bank and building society accounts. However, they are only able to replace:

  • Deposits of up to £85,000 per institution per individual
  • Temporary high values of up to £1 million

Therefore, it is important to keep your money safe by maintaining a balance which falls under the FSCS’ protection limits. That may mean splitting your savings between banks and building societies, but it does mean that you are more likely to receive compensation, should they default.

All institutions which are regulated by the Financial Conduct Authority (FCA) will be eligible for FSCS protection. You can check if a defaulted bank or building society is protected by the FSCS here.

5. Stay up to date

As new products become available and older savings accounts are closed, it is important to stay ahead of the game. By keeping an eye on developments, you will be able to tell when a new product, offering you better terms, enters the market.

For example, NS&I (National Savings and Investments) have recently relaunched their Guaranteed Growth and Income Bonds, which could be beneficial for those looking for guaranteed returns. Additionally, savings accounts rates are changing all the time. So, keeping your finger on the pulse is massively important if you are to find the best rates.

6. Think outside the box

Without doing any research, you could be forgiven for thinking that only the providers with the biggest marketing budget are offering something that will benefit you. However, not all firms are splashed across our televisions and billboards – but they still offer some great opportunities and benefits.

For example, think about the Islamic Banks. While not traditional savings accounts; because they pay profit, not interest, the predicted rates are attractive, and they are generally FSCS covered.

7. Be vigilant

Don’t be tempted by high return, low-risk investments. When interest rates are so low it’s a perfect time for scammers to try and tempt you with promises of double-digit, guaranteed returns.

No such thing exists.

Double and triple-check any offers and be especially wary if you receive unauthorised contact from providers looking to sign you up then and there. There are two rules to remember:

  • If it sounds too good to be true, then it is!
  • If they have no reason to be contacting you, you have no obligation to talk to them

For more information on savings, please get in touch.