Interest rates rise above 0.5% for the first time in a decade

The Bank of England (BoE) has increased interest rates above 0.5% for the first time since 2009.

Today, the Monetary Policy Committee (MPC) voted unanimously to push up the base rate by 0.25% to 0.75%.

That’s not a massive increase; savers aren’t going to suddenly start seeing real returns on most of their bank or building society accounts and it won’t cause significant pain to most mortgage holders.

However, coupled with the 0.25% increase in November last year, it is another warning shot that interest rates aren’t going to stay at record lows forever and that those with debt should prepare for further increases.

So, how will today’s rise affect you?

If you are a saver…

You will hopefully see the increase passed on in the form of higher interest rates.

Nevertheless, it’s probably too soon to get over excited. With inflation (as measured by the Consumer Prices Index) currently at 2.3%, you would currently have to tie up your savings for at least five years to get a ‘real’, above-inflation return. However, tying up capital for that amount of time isn’t without risk and is something to think carefully about doing, before making a commitment.

However, we expect savers will welcome any increase in interest rates with a small cheer, even if they aren’t breaking out the bunting just yet!

If you are a borrower…

How you’re affected by a base rate rise will depend on how you are borrowing money.

If you have a tracker mortgage, where the interest rate is pegged to the BoE base rate you can expect your monthly mortgage payment to rise almost immediately. The same is almost certainly true if your mortgage is arranged on your lender’s Standard Variable Rate (SVR). If you have a fixed-rate mortgage, you won’t see any immediate change to your monthly payments, because as the name implies, your interest rate is fixed and won’t change for the duration of the product you selected when you took the mortgage out. However, the pain may only be delayed until your fixed rate ends, at which point your payments may rise due to the increase in interest rates which occurred during the period of your fixed rate.

Whether you are immediately affected or won’t be until the end of your fixed rate, all mortgage borrowers should start to prepare for further interest rate rises.

There are three key things to do here:

Check your mortgage deal: Use comparison tools or ask your financial adviser or planner to help you to work out whether you are currently receiving the most competitive rates available on the market. This may mean considering a fixed rate, which will protect you from further interest rate rises for a period.

Review your household expenditure: This will help you to understand whether there are any items you can cut back on to create surplus income which could be allocated to higher mortgage payments should rates rise again. Then, you can begin to benefit from making those cutbacks straight away, potentially using the extra income for your emergency fund.

Build and maintain your emergency fund: If you don’t already have one in place, now is the time to take steps to build up an emergency fund. This could help you to recover as and when further interest rate rises take effect, or, as the name suggests, bail you out in a financial emergency.

Should we expect further rate rises?

The BoE Governor, Mark Carney, signalled that three further rate rises will be needed to avoid the rate of inflation remaining above 2% over the next three years.

The report released following the announcement clarifies this: “The Committee also judges that, were the economy to continue to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2 per cent target at a conventional horizon.

“Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”

Retirement planning: Four factors which will affect the income needed in retirement

Since the introduction of Pension Freedoms, the amount of people accessing their retirement income via a drawdown arrangement has increased dramatically. More than £17.45 billion in flexible payments has been accessed by those in and approaching retirement (Source: HM Revenue & Customs (HMRC)).

However, when planning your retirement income, it is important to ensure that the new-found freedoms do not go to your head and that your money lasts as long as necessary. In other words, until you or your spouse are no longer with us.

What could go wrong?

Pension Freedoms means that capital in pension funds can be accessed with more flexibility than before. There are now fewer barriers and hinderances to making ad-hoc withdrawals to suit your needs. Due to this, many people who would previously have had little choice but to purchase an Annuity, are now choosing to move some or all their pension into a Flexi-access Drawdown arrangement instead.

Whereas an Annuity offers a guaranteed, potentially inflation-proofed, annual income, Flexi-access Drawdown is effectively a pot of money which is available to make withdrawals from on request. While that is mainly good news for retirees, it does bring with it a risk of taking too much, too soon and facing financial difficulties in later life.

Often, this money is taken through a series of regular withdrawals. However, the introduction of Pensions Freedoms led many people to take advantage of the flexibility and take everything they have.

So, to make sure that your pension lasts for the rest of your life (and, if necessary, that of your spouse), you need to start thinking about how you will use the money, in advance. Ideally, you will analyse this long before you need to use the money, so that you have time to make adjustments and potentially increase the amount you are putting away, to meet your retirement aspirations.

This is a view shared by Steven Cameron, Pensions Director at Aegon: “The majority of people are now choosing to draw down an income, while keeping their pension pot invested, rather than buying an annuity. While this offers greater flexibility, it means people need to predict how long their retirement is likely to last, so they avoid the risk of taking too much income and running their pension pot dry.”

Things to consider

There are four key factors affecting the level of income needed in retirement, these are:

  1.Your age

There are conflicting opinions on whether retirement age affects life expectancy. However, it will affect how much you need to live on in retirement. If you will be leaving work in your 50s, you could be retired for up to 50 years if you live to be 100 or older! However, some people will continue working into retirement and may only need to support themselves fully for 10 years or less after leaving employment.

Of course, the State Pension is not available until you reach 65, so if you choose to leave work before then, you will need to make sure that you have the money to bridge the gap.

Steven Cameron again: “Of course, no-one knows exactly how long they’ll live and it’s extremely risky to base your income on living no longer than the average, as many people live far longer. The affordable income also depends on an individual’s overall health and where the pension fund remains invested.”

Put simply, the longer your retirement lasts, the more money you will need to maintain your desired lifestyle throughout.

2. Your gender

Unfortunately, gender equality has not yet reached all corners of life, and with more women taking time away from their careers to care for relatives and children than men, they are likely to retire with a much smaller pension fund. According to research from Prudential, women leaving work in 2018 will have an average of £4,900 less each year than their male counterparts. It will need to stretch further too, considering that women have a longer life expectancy, on average, than men.

Without getting too much into gender politics or apportioning blame, this is something that you may need to factor into your plan if it affects you.

It’s not just money that is affected by your gender, either. For people of all ages, the life expectancy of females is higher than that of men, without accounting for lifestyle and occupational hazards (Source: Office for National Statistics(ONS)).

3. Your location

Surprisingly, where you live can make a difference to your life expectancy. For example, females aged 65, currently have a life expectancy of:

  • 21.1 years in England
  • 20.6 years in Northern Ireland
  • 20.57 years in Wales
  • 19.74 years in Scotland

(Source: ONS)

The difference between those figures are not huge, but for those still planning how they will use their retirement fund, it could mean that they will run out of money if they do not account for the extra time they have. In fact, if they each had a pension pot of £100,000, a woman in England would need to live on £1,000 less each year than a man in Scotland, according to Aegon.

Aside from your life expectancy, the area you live in during your retirement can also affect how much income you need and where your retirement capital is spent. To start, the cost of living is much higher in some areas than it is in others, and that could eat into your retirement income quite quickly if you do not prepare for it. On top of this, if you need care in later life, your area could dictate both how much you need to spend on it, and what services are available.

4. Your health

There are two sides to the health coin:

First, any health issues you have are likely to continue to push the cost of living up as you get older and your needs intensify.

Secondly, your health can impact your life expectancy. But some conditions will have a greater impact than others, so if you live longer than you originally planned for, you will need to make sure that you have the funds to pay for it.

Mr Cameron concludes: “Whether you’re a man in Glasgow or a woman in Camden, we always recommend seeking advice to arrive at a sustainable income level and an investment strategy that allows freedom in retirement while controlling the risk of running out of money.”

To get more insight on the factors affecting your retirement income, get in touch.

10 signs it’s time to get financial advice

How often do you wake up with the intention of getting financial advice as your number one priority?

For almost everyone, the answer is never. Rather, the urge to seek financial advice is usually triggered by an event, or idea.

According to research from the Financial Conduct Authority (FCA), less than one in 10 UK adults (6%) have sought regulated financial advice relating to investments, pensions or retirement planning, while a quarter are likely to need it.

This is a shame, as we see on a regular basis the benefits our clients get from seeking advice. However, we recognise there are many reasons why people don’t get in touch.

For example, across the country, an average of 34% of people do not know where to start looking to find a financial adviser, should they need one. If you are one of them, you’ll find our contact details at the top of the page!

But what might push you to make the call?

It could be anything, but here are 10 of the most frequent ‘triggers’ we hear:

1. “I’ve received a letter.”

Whether it’s a pension statement, valuation of investments or any communication regarding your finances, something landing on your doorstep could be the pivotal factor in deciding to seek financial advice. Whatever you’ve received, bring it to us and we’ll explain what it means for you and your future.

2. “I don’t want to go to work today, can I retire instead?”

In the years before the State Retirement Age, it can be tempting to pack it all in early. Especially if you’ve overdone it at the golf club over the weekend and are facing an early Monday morning start. We can help you to understand if your finances are in the right place to bring retirement to you, sooner rather than later.

3. “My friend has been talking about their financial planning, can I do what they’re doing?”

Just because your friend, colleague or even spouse is doing something, doesn’t mean it is the right decision for you as well. However, by seeking advice, you can find out whether it truly is the best option available, or if there are other methods and products which may be better suited to your needs and circumstances.

4. “I want to buy a car/house/helicopter… can I afford it?”

Making a large purchase is a great feeling, especially if you’ve been planning it for a while. But it is wise to stop and think before diving into a big shopping spree, let a professional walk you through the consequences of spending that money and project your financial position afterward to see if it is a sensible purchase to make.

5. “A new baby has been born into the family, I want to put money aside for them.”

Saving for the future is important, and the earlier money is put away for someone, the longer it will have to potentially perform well. Starting to save or invest for a new-born is particularly prudent and there are many options available, some of which may be better suited to your family than others, so why not let us talk you through them?

6. “I’ve been diagnosed with an illness and I want to make arrangements just in case.”

It’s not a fun topic, but getting your estate organised is something everyone needs to do, regardless of age or health status. Talking to a financial planner or adviser can help you to make sure that your money and assets are not only given to the right people but that your estate is distributed in a tax-efficient way.

7. “I want to start my own business.”

If you have an entrepreneurial idea that you want to make reality, you will first need to find funding. It may be possible to source that yourself, using savings and investments, or you may need to access credit to get your venture off the ground. Either way, we can analyse your current situation and help you to find the right strategy to meet your goals.

8. “I want to leave a business I own.”

On the other hand, maybe you have already grown a business to success and now it is time to put your feet up and let the next generation take the reins. Navigating your way out of a business can feel like more hard work than building it up in the first place. Talking to a professional can give you the peace of mind of a second pair of eyes on the paperwork, as well as the confidence that you are in the hands of a professional who is on your side throughout the process.

9. “I’ve received some inheritance, what should I do with it?”

If you have received a large amount of money, you may be wondering how you can use it most effectively. Alternatively, you may simply want to know if you can afford to spend it all straight away and enjoy the freedom for a while. It is likely that the most sensible solution will be to put most of it away in savings or investments, while allowing yourself to spend a portion of it. The amount you can afford to spend right away will depend on your circumstances and plans for the future, so contact us for a more personalised answer to this.

10. “I read an article that scared me!”

The media is full of stories which can make you feel like the world is against you, or a financial scam is always just around the corner. A financial adviser or planner will be able to separate fact from sensationalism and give you advice on ways to protect yourself against any real dangers to your financial wellbeing.

Whatever it is that has you considering taking financial advice,

Six reasons to write a will even if you think you have nothing worth inheriting

61% of UK adults do not have a will in place, according to Which?.  A fifth of those say they have not written a will as they have nothing worth passing on.

However, a will does so much more than just pass on material and financial assets. It is also used to help let those left behind know your wishes and could be the best way to ensure that they are followed, after you die. These can include:

1. Who oversees your estate

You need to choose who will be the executor(s) of your estate. They will take charge of it and distribute your estate in line with your will. You can appoint up to four executors but, as they need to make decisions on a joint basis, fewer may be more practical. Executors must be over the age of 18 and it is possible for them to also be beneficiaries of the will.

The executor(s) of your estate will be responsible for following the requests made in your will to the best of their ability.

2. Who cares for your dependants

If you have children or are responsible for looking after vulnerable adults, you can include instructions for their care in your will. This may include who will look after them and where they will live. It is obviously important to involve any potential carers in this decision, as they will need to be prepared for the responsibility and agree to it.

As an aside, nominating someone to look after dependants is only half the job. It’s important to make sure that those people have the financial resources to provide the level of care. Therefore, making a will is a good time to make sure your Life Insurance and financial protections are sufficient, and trusts are set up to ensure that the capital paid on death is put in the right hands at the right time.

Aside from human dependants, you can also include instructions for the care of pets in your will. But again, make sure the person or people you nominate are willing to take on the responsibility.

3. What happens to sentimental items

Even if you think you don’t have anything of financial value to pass on, you shouldn’t underestimate the importance of sentimentality. If you have belongings which you want to be passed on to specific people, you can include this in your will. You may even want to add instructions for how you want your belongings to be passed on in the future. Though there is no guarantee that they will be followed.

4. Where your money goes

Your estate may not be worth anything right now, but life is quite unpredictable and there is no way of knowing how much will be left when you die. It’s unlikely to happen, but many of us have heard the story about a man who hits the jackpot, only to pass away 24 hours later. Once your estate has been settled, i.e. any costs have been taken out of the money you leave behind, there may be some left, and you will need to leave instructions as to where it goes.

5. Whether you make a charitable donation

You may decide that any money left in your estate once it has been settled is to go to charity. Including it in your will is the best way to continue supporting a cause you are passionate about.

Charitable donations are immediately outside of your estate for Inheritance Tax (IHT) purposes. So, if you had suddenly come into enough money to put you over the threshold, a donation could protect your loved ones from a large tax bill.

6. What happens to you

It’s not a cheerful thought, but some may find comfort in deciding what will happen to their body when they die. You can also include specific instructions for your funeral arrangements, such as music you would like to be played, the clothes you wear and who will be your pallbearers.

What happens if you die without a will in place?

If you don’t have a will, or your current will is not valid when you die, your belongings and estate will be left intestate. That means that the laws of intestacy will determine how your assets are distributed, and what happens to any belongings you have. Furthermore, the decisions surrounding who will look after your dependents will be left to the courts to make.

Of course, there’s a good chance that those decisions will not be in line with your wishes. It will also mean that your loved ones will be subjected to a much longer, more stressful process than if they have a will detailing your wishes available.

What should you do now?

Six things:

  1. See if you could be missing out on other ways to pass money onto loved ones, this may include, Death in Service benefits at work or your pension provisions.
  2. Write a will. If you’re not sure where to start, get in touch with us for help or contact your solicitor. Alternatively, see if Will Aid is for you.
  3. Talk to your loved ones about your wishes and any responsibilities you wish to pass onto them.
  4. When it’s written, make sure your will is kept in an accessible place and tell people where it is. If possible, try to make sure any important documents that the executor of your estate will need, are with it, that includes details of your accounts, insurance documents and your identification, such as passport and birth certificate.
  5. Pass the message on to your family and friends and encourage your loved ones to be equally as prepared.
  6. If you already have a will in place, you’re not done yet. You need to make sure that it is up to date and valid.

It is recommended that you review your will regularly and at major milestones, such as:

  • If you get married
  • If you get divorced
  • If a new baby joins the family
  • If you receive a financial gift or inheritance
  • If your circumstances change
  • If you want to change your beneficiaries

It is often overlooked that milestones such as getting married can invalidate a will, and other changes may mean that the decisions you made previously no longer reflect your priorities, so maintaining your will can be just as important as writing it in the first place.

For more information and help with writing or updating your will, get in touch.

Pretirement: Why work during retirement?

‘Pretirement’ might sound like an early retirement, but it’s anything but.

In fact, ‘pretirement’ is a term coined to describe the act of easing into retirement; or working beyond State Retirement Age. This could be full-time, part-time, or on a consultancy basis.

Of those reaching the age of 65 in 2018, 50% will enter ‘pretirement’, instead of leaving work completely, according to Prudential.

Reasons for staying in work

You may be wondering why people would choose to work when the best part of reaching retirement age is the ability to go on unlimited holidays, focus your attention on the gardening and spending time with the grandchildren. The top four reasons given by those who are looking to continue working when they reach retirement age this year, are:

  • Staying active and healthy, both in mind and body (54%).
  • They enjoy their job and are not yet ready to leave (43%)
  • Maintaining a routine and having a reason to leave the house (26%)

Unfortunately, for 12% of those who will be continuing to work after reaching 65, it is out of necessity, rather than choice, as they cannot afford to retire yet.

Stan Russell, a retirement income expert at Prudential, expands on this: “The shift to ‘pretirement’ in recent years shows that many people reaching State Pension age aren’t ready to stop working. Reducing hours, earning money from a hobby or changing jobs are all ways to wind down from working life gradually and for many to avoid boredom and maintain an active mind and body.

“However, not everyone has the luxury of choosing their retirement date due to their financial situation not allowing them to give up work and others may be forced to stop working for health reasons. Saving as much as possible as early as possible in their career is the best way for people to ensure they are financially well-prepared for a retirement that starts when they wish, or need, it to.”

Finding the ideal work-life balance

Those who will be reaching retirement age in 2018 are hoping to:

  • Reduce their hours and go part-time with their current employer (26%): This will provide the free time to enjoy retirement, while continuing to work in a familiar space and maintain some of their former routine.
  • Continue full-time in their current role (14%): If nothing changes, it may be sensible to delay your State Pension and increase the amount it pays in later years as a result.
  • Try to earn a living from a hobby or start their own business (19%): For some, staying in their current job may not be a priority, but that doesn’t mean that work will end when they reach 65. Whether the aim is to generate some extra spending money, or to start a business which will provide a substantial income by itself, starting a business can be hard work at any age.

These could all be viable options for those who will continue working after the age of 65, whether it is by choice or not. But the true goal should be to put yourself in a position where you can work if you want to, but ultimately, your retirement is yours to enjoy as you wish.

In short, make sure that working in retirement is an option, not a necessity.

Taking control of your retirement planning

No matter what your dream retirement looks like, try to give yourself as much time as possible to put your financial plan into action.  This will involve:

  1. Defining your retirement needs: Determine what your dream retirement looks like and define what you want to do, and what your ideal lifestyle will involve.
  2. Calculating how much you will need to meet them: The cost of living in retirement will depend on the activities you want to take part in and the lifestyle you are hoping to lead. The more lavish and exotic your dreams, the more money you will need to support that lifestyle.
  3. Understanding your current position: Analyse how much you are currently putting away, look at your current pension fund value and forecast how much you will have available when you retire if you continue to prepare in the same way. Alternatively, talk to us and we can do all of that for you.
  4. Finding ways to bridge the gap: If you will not have enough money to retire on your own terms, you will need to act sooner rather than later. The first option is to start making bigger contributions to your pension, which will help you to increase your fund in time to retire. Alternatively, you could choose to compromise on the lifestyle aspirations you have set for yourself.

While you may be planning to continue working in retirement to remain active and continue doing the things you love, it is important that the income gained from that is in fact, a bonus, rather than your main form of retirement income.

Having the flexibility to change your mind or adjust your plans if your circumstances change is invaluable. Therefore, you need to make sure that you have the retirement income available to support the lifestyle you want whether you continue earning or not.

The value of financial advice and planning

Seeking the opinion and help of a professional will enable you to see the bigger picture when it comes to retirement planning. By showing you the retirement lifestyle, you are on track for, and explaining the options facing you to reach the type of retirement you want, you can better understand your financial situation. You could also benefit from increased confidence in your financial decisions and feel secure in the knowledge that there are years of experience and qualifications supporting the decision you make.

To get started, feel free to get in touch with us.

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.