Category: Retirement

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Generation X is failing to save for their pensions

With rising costs of living affecting the way we live our lives, it seems that pensions have taken a back seat for some. Workers in their forties and fifties from generation X have left the organisation of their pension to the last minute, with many savers now pouring money into their pots, trying to make up for lost time.

According to a study carried out by Salisbury House Wealth (SHW), Gen X accounted for 43% of all UK pensions savings in 2018. This marks a dramatic surge in savings, increasing by 14% from the previous year, making up £3.7bn of the £8.5bn saved during the course of the year.

Tim Holmes, managing director of SHW, said: ‘Many individuals in generation X are finding their incomes squeezed by having to pay for both younger and older dependents. As a result, pensions will likely only become a priority at the last minute.’ Tim later goes on to point out that although it may seem wise to leave saving to a later date, your investments may not have enough time to grow.

This seems to link with the white paper produced by the Financial Conduct Authority (FCA) earlier in May on intergenerational differences. The paper noted that between 2014 and 2016, people aged 40 to 50 had less total wealth when compared with people of the same age 10 years earlier. The FCA has suggested that an open debate is required in order to understand the specific challenges that these particular age groups face.

Older people are living longer as life expectancy increases. Baby boomers are having to develop new financial strategies to maintain living standards in later life whereas younger people are struggling to build wealth due to rising house prices, insecure employment and student debt.

The FCA points out that Gen X are likely to be financially stretched, as they are torn between the responsibility of helping older generations in later life whilst also providing financial support for younger generations, leaving less money that can be set aside for their pensions.

Christoper Woolard, executive director of strategy and competition at the FCA, says that from ‘baby-boomers to generation X to millenials – everyone’s financial needs and circumstances are evolving. It is clear that each generation will have its own challenges.’ He goes on to say that now is the time to ‘step back, consider and understand how these needs are evolving and challenge assumptions about customer needs in the context of intergenerational factors.’

What does it take to retire early?

The idea of retiring in your 50s or even your 40s sounds like a pipe-dream to most, what with the increased cost of living, inflation and other economic factors slowly eating away at your predicted earnings. This hasn’t stopped the rise of the FIRE (Financial Independence Retire Early) movement, though, a new method of frugal living that aims for early retirement, escaping long working lives and living off the stock market or other supplementary income for good.

One of the most infamous experiments carried out by Stanford University is the marshmallow experiment, where a pair of psychologists gave children a choice: one reward now, or two rewards if they waited around 15 minutes. Some of the children took the early reward of a marshmallow. Others struggled, but managed to wait longer, occupying themselves until it was time to receive a double reward.

Saving for retirement can be very similar to the lesson in delayed gratification, only more difficult. The children knew what reward awaited them should they be patient – most adults don’t have a clue if their savings will be enough for the future. When the reward is intangible or complicated, it’s even more difficult to set limits now in the hope of future benefits.

So, how do you do it?

Keep your spending in-house

From small seeds of saving do sturdy trees of retirement grow. Simply put, it’s good to aim small when beginning your savings journey. That £2.65 coffee from your local coffee shop is now going to be an instant in the office. No more eating out for lunch, it’s time for homemade meals to be brought into work with you. Cutting out the small daily expenses can really help boost your long term savings and help usher in that desired early retirement. Let’s take our £2.65 coffee for example, the average UK citizen works around 260 days a year – that’s £689 a year!

Utilise technology

There are a number of apps available, such as Moneybox, that make some basic assumptions about stock market returns and inflation rates which then inform you as to how much you’ll need to save. Having a handy app on your phone can help you make decisions on the fly and allow you to check what a potentially impulsive purchase may cost you in the future.

Shop around

Saving money where you can on bills, transport and other outgoings can help to grow your retirement pot quickly and without too much skin off your nose. Ask yourself whether you really need that magazine subscription or streaming service. Can you find a better deal on your phone or energy contract? The answer is often yes.

Take advantage of saving opportunities

The government has recently introduced a new Lifetime ISA open to those aged between 18 and 40. LISA account holders can save up to £4,000 a year, with the government adding an annual 25% bonus up to a maximum of £1,000. There is a limit, however. You won’t be able to contribute to a LISA or receive the bonus when you turn 50, but the account will stay open and your savings will continue accruing interest or investment returns. For more information on the terms of withdrawal and eligibility, check out this government’s guide.

Decide what your goals are

Ready for some serious saving? Pretirement is an app developed for the financially-inclined who want to put away small savings over the long term in order to save for a holiday or a new car. Their headline claim, using their clever algorithm, is that by saving £800 a month towards your retirement, you shave years off your working life, depending on what your retirement goals are.

And there’s the big question. What are your retirement goals? Do you want to live a life of luxury, enjoying all the potential freedoms that your new found free time will have to offer? Or would you rather have a comfortable yet frugal retirement. There’s a whole range of options available to you, and your retirement goals will help to inform you of how much you need to save and invest. A financial adviser can be a great help in determining this factor as they can give you direction on what the ideal savings plan is for you.

At the end of it all, the message is to save when and where you can. It’s about growing your savings and securing your finances.

Defined Contribution vs Defined Benefit – what’s the difference and what’s the trend?

As defined contribution pension plans overtake defined benefit (in terms of money paid into schemes) for the first time ever, more and more people are taking an interest in how the two differ and the relationship between them. The Office of National Statistics (ONS) has reported that in 2018, employee contributions for defined contribution pension pots reached £4.1bn, compared to the £3.2bn that employees contributed to DB schemes.

With April 2019’s increase to minimum contributions for DC schemes seeing employer contribution hitting 3% and employees contributing 5% towards their pension, the trend of DC contribution increases in relation to DB isn’t set to slow any time soon.

So before DB Pensions become a distant memory, let’s take a look at exactly what they are. A defined benefit pension, which is sometimes referred to as a final salary pension scheme, promises to pay a guaranteed income to the scheme holder, for life, once they reach the age of retirement set by the scheme. Generally, the payout is based on an accrual rate; a fraction of the member’s terminal earnings (or final salary), which is then multiplied by the number of years the employee has been a scheme member.

A DB scheme is different from a DC scheme in that your payout is calculated by the contributions made to it by both yourself and your employer, and is dependent on how those contributions perform as an investment and the decisions you make upon retirement. The fund, made of contributions that the scheme member and their employer make, is usually invested in stocks and shares while the scheme member works. There is a level of risk, as with any investments, but the goal is to see the fund grow.

Upon retirement, the scheme member has a decision to make with how they access their pension. They can take their whole pension as a lump sum, with 25% being free from tax. They can take lump sums from their pension as and when they wish. They can take 25% of their pension tax free, receiving the remainder as regular taxable income for as long as it lasts, or they can take the 25% and convert the rest into an annuity.

One of the reasons for DB schemes becoming more scarce is that higher life expectancies mean employers face higher unpredictability and thus riskier, more expensive pensions. This is a trend that looks likely to continue. If you’re unsure of how to make the most of your pension plan, it’s recommended to consult with a professional.

Sources
https://businessnewswales.com/defined-contribution-pensions-overtake-defined-benefit-for-the-first-time-ever/ https://www.moneyadviceservice.org.uk/en/articles/defined-contribution-pension-schemes https://www.pensionsauthority.ie/en/LifeCycle/Private_pensions/Final_salary_defined_benefit_schemes/
https://www.moneywise.co.uk/pensions/managing-your-pension/your-guide-to-final-salary-pensions

6 bad habits to avoid during retirement

Planning for retirement can be complicated, as anyone approaching the end of their working life will tell you. However, navigating the myriad of choices, both financially and socially, doesn’t have to be such an enigma. Here are a few tips to help you avoid common bad habits that retirees often fall into:

1. Spending your pension fund money

Yes, that’s right. If you delay spending your pension and spend other available cash and investments first, you could keep your money safe from the taxman. Not spending your pension fund money until you have to may also help the beneficiaries of your estate avoid a large inheritance tax bill.

2. Taking the full brunt of inheritance tax

Inheritance tax can cost your loved ones vast sums if you were to pass away. There are plenty of ways to protect them from losing a large portion of your estate. Strategies such as making gifts or leaving assets to your spouse are an effective way to avoid the tax, among other valuable strategies.

3. Failing to have a plan

Many retirees have multiple avenues of income to provide for them during retirement. Making the most out of those streams of revenue is key to a stress free retirement, as unwise investment or poor planning can lead to unnecessary worries. We recommend contacting a financial adviser in order to set out a plan that’ll let you focus less on worrying about income and more on enjoying your well-earned retirement.

4. Not taking advantage of the discounts

There is an absolute boatload of price slashes available to retirees over a certain age. This ranges from discounts on train fares to reduced prices of cinema tickets. We recommend that all pensioners takes full advantage of these discounts as every penny saved provides more financial security for yourself and your loved ones.

5. Thinking property is the only asset worth having

Property can be a valuable source of retirement revenue, but it’s not the only way to create more income. Property can often incur maintenance expenses for landlords and take up time to resolve that could be spent making the most out of your retirement (though there are many pros and cons to the pension vs property discussion).

6. Buying into scams

When you retire, it seems that all kinds of people come crawling out of the woodwork to give you a “great” investment opportunity or insurance policy. Tactics can include contact out of the blue with promises of high / guaranteed returns and pressure to act quickly. The pensions regulator has a comprehensive pensions scam guide that’s definitely worth a read.

Building your financial future

Sources
https://moneytothemasses.com/saving-for-your-future/pensions/buying-property-with-your-pension-everything-you-need-to-know
https://finance.yahoo.com/news/15-things-not-retirement-090000553.html
https://miafinancialadvice.co.uk/14-retirement-planning-mistakes-that-you-dont-know-that-you-are-making/
https://miafinancialadvice.co.uk/spend-your-pension-last/
https://www.investorschronicle.co.uk/managing-your-money/2018/10/04/want-an-easy-retirement-avoid-this-common-mistake/

The popularity of Equity release is growing, but is it a good move?

Equity release is no longer the niche lending area it once was. More and more homeowners over 55 are choosing to release cash tied up in their homes and there are few signs of this trend subsiding.

Lending in 2018 increased by 27% compared to the previous year and is now nearly double what it was in 2016. It’s likely that the UK’s growing elderly population, where many don’t have the pension security of generations past, is partly behind this expansion. The growing variety of equity release products on the market could also be a factor. Newer products mean that homeowners are able to gradually release money from their property, rather than taking it as a lump sum.

Is it a risky option?

Equity release doesn’t exactly have a squeaky clean reputation. There have been past accusations of mis-selling and there are occasions where relatives find themselves receiving less inheritance than they might have expected.

Because of the way interest accumulates over the years, people can end up owing a large amount of money that is paid back from the value of the property when a person dies or goes into care.

Whether equity release is a suitable solution really depends on a person’s individual financial and personal circumstances.

As well as getting sound financial advice beforehand, it’s always best to be open with loved ones about releasing equity from your property. Two in three complaints to the Financial Ombudsman about equity release come from relatives of people who have died or gone into care. It can save a lot of upset later on to be open about releasing cash from a property when you do it, rather than further down the line.

The bottom line is that equity release can play a crucial role in supporting a full retirement, alongside pensions, savings and other assets, for the right homeowner. Since homes are most people’s largest asset, it makes sense to at least consider how this asset can be used to fund retirement. Downsizing in later life is another way of releasing money from your home.

Sources
https://www.mortgagestrategy.co.uk/feature-the-rise-and-rise-of-equity-release

Expert Advice: Diversify your ‘life Portfolio’ for a happy retirement

It goes without saying that being in a strong financial position in later life is important for a happy retirement. After all, it’s hard to be truly happy if you’re constantly worrying about money and having to devise new ways to make ends meet.

However, money isn’t everything. Even if you have your finances under control and adequate resources, a happy retirement isn’t a given. This means when retirement planning it might be worth coming up with a strong ‘Life Portfolio’, as well as a financial one. Looking at your ‘Life Portfolio’ can help guide you through the important decisions you must take in the run up to retirement, as you’ll have made a record of the key things you want from later life.

What makes a ‘Life Portfolio’?

For the purpose of the Life Portfolio, it makes sense to break down your lifestyle planning into four areas:

Health

This refers to activities that help you remain in good health. Health here shouldn’t be limited to just physical health. It’s also important to think about activities that keep you happy and mentally active.

People

Existing family and friends aren’t the only things that make up the ‘People’ category. You should also think about community organisations you could get involved in to make new friends.

Places

Where do you see yourself living in retirement? Do you have any travel plans or dream holidays? Will you be close enough to see your loved ones?

Pursuits

What will you do in your retirement? What hobbies or interests do you have which you’d like to pursue in retirement? Does volunteering appeal to you? This also relates to whether you’d like to retire fully or stay professionally active in some capacity.

In the run up to retirement, it’s important you think about the meaningful activities that will keep the zest in your post-retirement life. Retirement is a big change, and despite the prospect of much more free time, it’s not always a seamless transition. Many experience a feeling of lacking the direction they once had through their careers.

If you develop a ‘Life Portfolio’ with a partner, you need to think about what goals you share and what goals are individual. Coming up with a set of shared goals for retirement while meeting your individual needs is important to ensure a happy retirement together. Whether you choose to write a formal ‘Life Portfolio’ or not, devising and working towards goals outside of work is key to being happy after you leave full time work.

Sources
https://www.kitces.com/blog/anna-rappaport-phased-retirement-life-portfolio-health-people-pursuits-places/

Going Dutch: Could this new type of pension be the answer to the pension problem

Work and Pensions Secretary Amber Rudd has given the go-ahead for Dutch-style pension schemes to be offered to UK employees. These schemes, known as CDC, are a ‘halfway house’ between defined contribution and ‘gold-plated’ defined benefit schemes.

CDC stands for collective defined contribution schemes. They are similar to defined contribution pensions in that employer and employee make a regular contribution to a savings pot. Unlike defined contribution schemes, however, savers pool their money into a collective fund, rather than having their individual accounts. The idea behind this being that risks are shared evenly by all.

What’s more, CDC pensions give their members a ‘target’ income for life. Instead of a guaranteed income, CDC pensions say they’ll pay out a ‘target’ amount, based on a long-term mixed-risk investment strategy. This amount can change – it can fall in the event of circumstances like adverse economic conditions – or rise if the assets are particularly well invested.

Risk is shared by employers making changes to the amount they put in. When markets are down, pension payments can be reduced and contributions may be increased. Also, CDC funds can take a more balanced approach to investment risk rather than moving an individual pot into low-risk bonds as the retirement date approaches, as can happen with ordinary defined contribution pensions.

Critics argue that CDC pensions will be too hard to marry with the high level of control we have after the introduction of pensions freedoms in the UK. You wouldn’t be able to transfer out and buy an enhanced annuity if you had a low life-expectancy, as you would in a defined contribution scheme.

This scheme will be offered to Royal Mail workers first. They have strong support from the Communications Workers Union to go ahead with the scheme for its 140,000 members, though getting the scheme up and running might take a long time.

Sources
https://www.personneltoday.com/hr/cdc-pensions-collective-defined-contribution-pensions-cdc-dutch-style-defined-ambition-pensions/
https://moneyweek.com/498182/cdc-pensions-a-third-way/

Why cruise holidays are booming for retirees

The cruise market offering has changed enormously in recent years, where once it was purely the domain of cabaret cheese and bad karaoke, now there’s something on offer for everyone (don’t worry, though, if you love cabaret and karaoke, that’s still an option). Whatever your tastes and priorities, you won’t be hard pressed to find a cruise to suit your needs.

Cruises have always been a popular choice for retirees but with the new potential for personalisation, they’re more popular than ever, with over 26 million passengers carried worldwide in 2018 alone. So what is it that makes taking to the seas such an attractive prospect?

1) Flexibility

Cruises have the potential to be a catch-all for whatever kind of holiday you’re looking for. Whether you’re after a romantic getaway, a family break over the school holidays, or a round-the-world trip that ticks off everything that’s left on your bucket list; it’s all possible when you’re on a cruise liner.

2) Activities

There really is a cruise out there for everyone. Some people want to lay on the deck and bathe in the sun, some people want to hone their rock-climbing skills, while others want to kayak alongside breaching whales. The possibilities are endless: if your priority is trying the food of critically acclaimed chefs, or even having a go at cooking the dishes yourself, fine dining can now be found onboard in some of the most remote corners of the world’s oceans.

3) Modern life can be stressful

Taking a cruise is not just about the food and entertainment available on board and the chance to see some fantastic locations. It’s also about taking the hassle of too much planning away from the holiday goer. Being able to relax and take a breather while you’re travelling the world is becoming a bigger priority for people and this has been reflected in the incredible attention and investment given to spa and wellness facilities on cruise ships. Plus it’s a great chance to unplug and really experience the world around you.

4) Value

Despite historically being a pursuit of the highest luxury with the pricetag to match, there are plenty of choices available for more budget conscious passengers. All-inclusive cruise holidays are a smart way to enjoy all the bells and whistles whilst remaining price savvy. Pick the right vessel and you can experience entertainment of broadway quality included in your price.

If you want to enjoy your retirement to its fullest but can’t decide on the best way to do that, considering a cruise trip is a great place to start.

Sources
https://www.lonelyplanet.com/amp/travel-tips-and-articles/getting-on-board-10-reasons-to-consider-a-cruise-trip/40625c8c-8a11-5710-a052-1479d27561cd?_t_witter_impression=true
https://cruisemarketwatch.com/growth/

4 Key takeaways from the Spring Statement


The Spring Statement is an opportunity to hear the latest updates on the state of the UK economy and what to expect of its growth over the coming months and years. With most people setting their focus firmly on the amorphous hokey-cokey of Brexit negotiations, it’s something of a breath of fresh air to take a moment to look at concrete upcoming strategies and measurable realities.

With that in mind, here are 4 key points you can hang your hat on while what’s on or off the table continues to be debated in the background.

1) Taxes, Taxes, Taxes

Employment is up and that means more tax receipts for the Government’s coffers. 2018 ended with 440,000 more people in work than 12 months prior, with 60,000 fewer people relying solely on zero-hours contracts. Government borrowing fell in January to the lowest we’ve seen since 2001 and £21bn of income and corporation tax was raised, leaving a healthy monthly surplus of £14.9bn.

2) Even more taxes

The Making Tax Digital scheme is set to come into effect on April 1st 2019. Looking at it broadly, it’s an effort to modernise the tax system. The first step comes in the form of mandatory digital record keeping for VAT, for those businesses which find themselves above the VAT threshold. It’s undoubtedly a strong example of intent for the future.

3) You guessed it… taxes

No Safe Havens is an initiative that was introduced in 2013 to crack down on those who seek to evade their tax through hiding their income and assets overseas, and those who advise them on how to do so. The Spring Statement brought with it a declaration of further commitment to this cause by investing in the latest technology and enforcing tough new penalties while, at the same time, making sure it’s easy for law abiding taxpayers to handle their tax correctly.

4) Growth is good

Okay, it’s not all about taxes. The Office for National Statistics’ January figures demonstrate the UK Economy has grown to the tune of 0.5%, blowing the economists’ predictions of 0.2% out of the water with the biggest monthly increase we’ve seen since 2016. Construction saw notable growth of 2.8%, with the service sector up 0.3% and manufacturing up 0.8%. We saw inflation fall to 1.8% in January and the general consensus is that we can expect to see UK growth of between 1.3% and 1.4% this year.

That’s your breath of fresh air over. You can get back to talking about Brexit now. If you have any questions surrounding any of these topics or the Spring Statement in general, please feel free to get in touch with us directly.

Revealed – the top 5 destinations for British pensions

Many British pensioners choose to move abroad, often in search of warmer climes and a more comfortable retirement.

The stereotypical idea of retiring abroad often involves moving to a mediterranean country. However, only one mediterranean country featured among the top 5 countries from which British expat pensioners claimed their state pension. This indicates that things might be changing…

Here are the top 5, in descending order:

5) Spain – 106,420 retirees

The Iberian nation has long been a retirement favourite for Brits, so we were surprised when it only came in fifth. The amount of British pensioners who spend much of the year in Spain is likely to be much higher, with many owning second homes whilst drawing their pension from the UK. Overall 16.7% of registered Spanish property belongs to UK citizens.

Spain is the only non-English speaking nation among the top 5. However, English is widely spoken in major cities and areas with a large number of tourists and expats, like the Costa Brava and Costa Del Sol.

4) Republic of Ireland – 132,650 retirees

Lush rolling scenery and cheap house prices outside of Dublin make the ‘Emerald Isle’ an attractive destination for British retirees. Although the weather may be a little on the damp side, its scenic countryside, dotted with stone castles and slower way of life have encouraged many to retire across the Irish sea.

The large quantity of Irish people living in the UK is also likely to be a factor, with many moving closer to their family after retiring.

3) Canada – 133,310 retirees

Great scenery, kind people and a low crime rate make Canada an ideal retirement destination. Canadians are famously welcoming, meaning settling in is very easy for retirees.

What’s more, Canada has excellent healthcare. There are no fees for medical treatment, doctors’ appointments and dental visits. Even eye tests come free of charge. It’s unsurprising that it’s just a hair behind it’s much more populous neighbour when it comes to the number British retirees settled here.

2) USA – 134,130 retirees

Despite coming in at second on our list, retiring in the US for non-citizens is tough. If you don’t have a job Stateside or a family member to sponsor you, your only option is the Green Card lottery. This is a lengthy and costly process.

All this said, the USA offers some great retirement options. Warm climates in southern areas, wild scenery and the allure of the American lifestyle can prompt Brits to retire across the pond.

1) Australia – 234,880 retirees

Warm weather, barbies on the beach and a high standard of living. It’s easy to see why Australia is the number one destination for British retirees.

However, retiring here does mean having a sizeable pension pot. Australia is a relatively expensive country, reflecting the much higher salaries people generally earn Down Under. House prices are expensive and food bills can leave you reeling.

Sources
https://www.independent.co.uk/news/business/news/brits-are-behind-one-fifth-of-properties-sold-to-foreigners-in-spain-as-sky-high-uk-prices-push-a6681296.html
https://www.thisismoney.co.uk/money/expat/article-6606883/Australia-number-one-destination-retired-British-expats.html
https://www.investopedia.com/articles/personal-finance/031115/how-retire-us-visas-process.asp