Tag: retirement options

Categories

the longevity challenge and how to tackle it

In the UK, we are faced with the challenge of an ageing population. Many of us will live longer than we might have expected. Already, 2.4% of the population is aged over 85. Because of improvements in healthcare and nutrition, this figure only looks set to rise.

The Office of National Statistics currently estimates that 10.1% of men and 14.8% of women born in 1981 will live to 100. A demographic shift to an older population brings unprecedented change to the way the country would operate, from the healthcare system to the world of work.

In addition, a long life and subsequently a long retirement, bring challenges of their own from a personal financial planning perspective.

Firstly, it means you have to sustain yourself from your retirement ‘nest egg’ of cash savings, investments and pensions. You need to ensure that you draw from this at a sustainable rate so you don’t run the risk of outliving your money.

Secondly, there’s the question of funding long term care. If we live longer, the chance that we will one day need to fund some sort of care increases. Alzheimer’s Research UK report that the risk of developing dementia rises from one in 14 over the age of 65 to one in six over the age of 80.

Of course, there are many different types of care, ranging from full time care to occasional care at home, with a variety of cost levels. All require some level of personal funding.

The amount you pay depends on the level of need and the amount of assets you have, with your local council funding the rest. This means that it’s definitely something that you need to take into account in your financial planning.

Having the income in later life to sustain long term care really does require detailed planning. Because of the widespread shift from annuities to drawdown, working out a sustainable rate at which to withdraw from your ‘nest egg’ is essential.

There is no ‘one-size-fits-all’ sustainable rate at which to draw from your pensions and savings. Every person has their own requirements, savings, liabilities and views on what risks are acceptable.

There are some things which you will be able to more accurately plan when working out the sustainable rate to draw from your pension. These include your portfolio asset allocation, the impact of fees and charges and the risk level of your investments. Speaking with your financial adviser will help you on your way to working out the right withdrawal rate for you.

There are, however, some unknowns. These include the chance of developing a health condition later in life and exactly how long you’ll live. It is best to withdraw leaving plenty of room for these to change unexpectedly, improving your chances of having a financial cushion to cope with what life throws at you.

Sources

Prevalence by age in the UK


https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/july2017

Defining and evidencing Sustainable Withdrawal rates

is buying a state pension top-up worthwhile?

As part of your overall financial planning, one item that is worth considering is your state pension and whether you are on track to get the full amount. If not, it is possible to buy top-ups, which could boost your payout by £244 a year for life.

The 2017/18 voluntary payment, under the Class 3 National Insurance top-up scheme, costs £741 and will get you nearer to, or over, the threshold for the maximum state pension payout – currently £164.35 a week. Such an opportunity can be particularly relevant for those who have contracted out of part of the state pension at some point previously during their working life.

A word of caution though before proceeding – some people have paid the top-up only to discover that it made no difference to their state pension and subsequently struggled to get a refund from HM Revenue and Customs.

Some of the confusion arose because of the major shake-up in April 2016 when the single-tier pension system was introduced. Under the old system you had to have 30 years of NI contributions to get the full basic £122.30 a week pension, whereas under the new one you have to have 35 years. The top-up system was letting some people pay for extra contributions when to do so was futile.

Despite the problems encountered by some, Steve Webb, former Pensions Minister, says it is still worth investigating whether the additional payment would boost your future state pension. ‘Ironically, I think it would be really unfortunate if lots of people who could now top up for 17/18 at incredible value were put off doing so or didn’t do so because they were still unaware of the option, and where the decision to top-up or not is much more straightforward and less likely to go wrong,’ he said.

To know where you stand, the first thing to do is to get an official state pension forecast from the Government website. This will highlight whether you have any gaps in your National Insurance record of contributions. The top-up scheme can be particularly relevant for women who took time out to look after children.,

If you reached state pension age before 6 April 2016, the old system will apply to you (that’s men who were born before 6 April 1951 and women born before 6 April 1953). However, if you reached state pension age after 6 April 2016 (men born after 6 April 1951 and women born after 6 April 1953), the new system will apply.

You also need to work out if 2017/18 was a qualifying year for you – when you were under state pension age for the whole year and in which you either paid or were credited with enough NICs to earn one year towards your state pension entitlement.


Sources
http://www.thisismoney.co.uk/money/pensions/article-5770947/Should-buy-state-pension-up.html

over 60s are jumping off the property ladder. Here’s why….

In 2007, there were 254,000 older people living in private rented accomodation. According to research by the Centre for Ageing Better, over the last decade that figure has skyrocketed to 414,000. If things continue the way they’re going, they estimate that over a third of those over 60 will be privately renting by 2040.

So why the shift? Renting comes with some clear benefits. Having to pay stamp duty becomes a thing of the past, as does worrying about managing property maintenance. A certain sense of freedom comes with renting too, particularly in terms of location. It’s a great opportunity to finally live on the coastline or in the city centre that you’ve always wanted to, but have not been able to afford to.

For example, one couple had previously owned a retirement flat in Torquay which they subsequently sold for £55,000. They dreamed of moving to Bournemouth, where a modest one bed apartment would have set them back closer to £150,000 and so was out of their reach. They found a home to let on an assured tenancy, allowing them to remain in the property for life for a fee of £775 a month including service charges. Selling to rent has allowed them to liquidate their biggest asset, and free up their capital to spend on travel.

Renting needn’t be forever, and for some people it’s a great opportunity to stop and think about your next move. It can give you time to really look at the options out there if you intend to get back on the housing ladder. Your requirements will change as you grow older and downsizing can be a great idea for some. Before you find the perfect property which will suit your needs going forward, renting gives you the chance to release some capital and decide what to do with it.

It’s worth bearing in mind, though, that by selling up and moving into private rented accommodation, your estate could receive a higher IHT bill. The inheritance tax exemption introduced in 2017 allows parents and grandparents an additional IHT allowance when their children or grandchildren inherit their main home, and so selling your home could remove your eligibility for the exemption.https://www.telegraph.co.uk/property/retirement/renting-retirement-over-60s-jumping-property-ladder/
https://www.telegraph.co.uk/financial-services/retirement-solutions/equity-release-service/should-you-sell-up-and-rent-in-retirement/

why it pays to retire early

Sound financial planning is not only good for your bank account – it could actually improve your life expectancy. If you’re reading this then you probably don’t need to be convinced of the benefits of looking after your money, but here’s another reason to add to the list.

The idea of retiring early can be most appealing. For some, it will already be a reality, while wise saving and investment may mean it’s perfectly achievable for those at the consideration stage. Research now suggests that an early retirement can actually also lengthen your life. Economists from the University of Amsterdam published a 2017 study in the Journal of Health and Economics which confirmed that male Dutch civil servants over the age of 54 who retired early were 42% less likely to die over the subsequent five years, compared to those who continued working.

Researchers put this life-extending phenomenon down to two main factors. First, when you retire you have more time to invest in your health. Whether that means you find more time to sleep, more time to exercise or simply more time to visit a doctor when an issue arises, you’ll see the benefit.

Secondly, work can be a great contributor to stress, creating hypertension which is in turn a huge risk factor for potentially fatal conditions. In the study, retirees were shown to be significantly less likely to fall victim to cardiovascular diseases or strokes.

Of course, there can be benefits to staying in work too. Participating in a work environment is a good way of keeping your mind and body active. On top of that, being part of a team helps develop and maintain a sense of purpose and belonging that is essential to cognitive health and development.

That’s not to say that all these benefits can’t be achieved outside of work; the key is to find a hobby, interest or cause to involve yourself in. As is so often the case, there’s no single solution. It’s important to find the best path for you, whether that’s staying in work, retiring early or going part-time. Whatever you choose, spend your time wisely as it could have a major impact on how long your retirement turns out to be.

Sources
https://www.cnbc.com/2018/03/27/how-research-shows-you-can-live-longer-if-you-retire-early.html

 

three lessons about retirement from those who have already retired

Retirement is undoubtedly the section of your life which receives the largest amount of planning for most people, with much of your working life spent ensuring you can live where and how you want once you’ve retired. However, as with all plans, there are always going to be aspects of your retirement which don’t end up quite how you’d expected, and a few you might not have even considered until you’ve actually given up work. Here are a few key lessons learned by those enjoying retirement already:

  1. Part-time work might not be for you – More and more people are including a part-time job into their plans for when they retire, sometimes for financial reasons but also to remain social and active. In theory it’s a great idea, and whilst it works well for some, finding something that meets all of your needs can be more difficult than you might expect. If you do want to continue working part-time, try to have something lined up before you actually retire. It’s also a good idea to plan for your part-time earnings to be extra money rather than a requirement for your monthly expenses.
  2. Think carefully before moving home – It’s natural that you’ll want to spend more time with family once you’ve finished working. But be realistic when making plans regarding your home. Keeping hold of a larger property might seem like a good idea to host family events, but if the space is rarely used then downsizing is often a far better option that makes both maintenance and utility costs more manageable. Don’t rush to move closer to family either. If your children are now young professionals it’s likely that they’ll need to move from one area to another for their career, which could potentially leave you living in an unfamiliar area and no closer to your loved ones.
  3. Maintain a realistic outlook – It may sound obvious, but retirement doesn’t automatically guarantee a stress-free life. It’s therefore important to make plans and keep a balanced mind to help you deal with any issues that either arise or continue once you’ve finished work. In fact, no longer having a career to focus on can make other aspects of your life to do with family or health feel overwhelming if you don’t prepare yourself emotionally. Taking up new interests and hobbies may seem like a cliché, but they’re a great way of ensuring you can keep perspective and make plans for the days and weeks ahead.

Sources
http://www.bankrate.com/finance/retirement/lessons-new-retirees-learn-hard-way-6.aspx

update on state pensions: essential reading for the under 50s

Recent changes announced by the government to the state pension will result in nearly six million people currently in their forties having to wait longer until they can retire. It’s a development which has raised concerns over the dependability of the state pension, which for many makes up the lion’s share of their retirement income and is the most valuable state-funded perk for even more people.

For the seven decades between 1940 and 2010, the state pension age remained constant for both men (65) and women (60). However, thanks to the 1995 Pensions Act, the age for women was increased to 65, a change which was to be phased in between 2010 and 2020. This was then altered further when the Conservatives and Liberal Democrats formed the coalition government in 2011, speeding up the process so that the age for women would increase to 65 between April 2016 and November 2018, with a further increase to 66 for all working adults from April 2020.

Under these plans, the state pension age would be 68 for those born after 6th April 1978. But the changes announced in July this year mean that window will increase to include those born between 6th April 1970 and 5th April 1978. The pension age for anyone currently under 39 is yet to be confirmed. The changes are likely to affect the younger generations who have lost out through the closure of ‘final salary’, or ‘defined benefit’ pension schemes.

Those in their late 30s and 40s are being described as the ‘sandwich generation’, being as they’ve missed out on the final salary pension schemes enjoyed by older generations, but are now too far through their working lives to feel the full benefit of automatic enrolment which younger generations will experience.

However, there are further concerns that things could change yet again, as the government has stated that law on the proposed pension changes won’t be passed until 2023, essentially preparing to pass the legislative aspects on to a future government. Thanks to Theresa May’s weakened position and Labour’s opposition to the proposed increases to state pension age, the changes may not happen at all.

As such, there have been calls from those in the financial world for an independent body to oversee any future changes, as well as the establishment of a national savings strategy to help people with their savings and investments to provide for their future

Sources
http://www.telegraph.co.uk/pensions-retirement/financial-planning/state-pension-shake-everyone-50-needs-know/

Government launch date for 120% drawdown limit …

The new drawdown limit of 120% will be introduced from 26 March, the government has revealed.

Chancellor George Osborne announced plans to return the limit for capped drawdown to 120% of  GAD (the Government Actuary’s Department) rate in his Autumn Statement in December 2012, but gave no date for the change.

In April 2011 the government changed the drawdown limit from 120% of the GAD rate, reducing it to 100%.

Prior to this, individuals could take 120% of the income level set by GAD. This was reduced to 100% in order to prevent investors from depleting their savings too quickly.

The move to reinstate the 20% uplift at the end of last year followed growing pressure from pension providers and MPs, who received complaints from retirees hit by cuts of up to 50% in their income as the GAD rate tracked annuity rates downward.

How providers are going to facilitate this change we are unsure at the moment, although welcome for retirees in drawdown they still have to wait until March.

 

For further information please do not hesitate to contact us on 01737 225665 or advice@conceptfp.com

 

building your financial future

 

 

Source: Citywire NMA Alex Steger

Emergency Budget 22nd June 2010

In summary key highlights are:

Capital Gains Tax (CGT)

  • CGT will remain at 18% for basic rate taxpayers, but will rise to 28% for higher rate tax payers from midnight tonight.
  • The annual CGT allowance of £10,100 stays the same for this tax year but will increase in line with inflation year on year.

Pension Taxation

  • The Chancellor plans to launch a review of personal annual allowances for pension contributions to somewhere in the region of £30,000 to £45,000, with effect from April 2011. The Government still aims to raise the same revenue using this revised approach, as well as simplifying the rules for employers and scheme members. Individuals on income of less than £130,000, who were not impacted previously, may now be, particularly if they are a member of a Defined Benefit scheme.

The perceived ‘compulsory annuitisation’ by age 75 will be extended to age 77, while the Government consults on a permanent change to these rules. It will still not be possible to contribute to a pension after age 75

My Property Is My Pension

Disillusioned with returns from pension funds and attracted by a property market boom lasting almost 10 years, many have turned to the property market to help fund their retirement.  

The pensions versus property argument is a strange one.  A pension scheme is not in itself an investment but simply a long term savings vehicle which conveys certain tax benefits.  Returns from a pension scheme will depend on the assets that are held within it and this could range from cash accounts to emerging market equity funds.  Indeed it is possible to hold property within a pension fund.  Commercial property can be held directly while access to the residential property market can be obtained from a range of syndicated property vehicles and managed funds.

There is no doubt that residential property has had periods of strong performance but it in recent years we have seen the re-emergence of negative equity and therein lies one of the biggest risks with property investment.  In order to purchase property, it is normally necessary to borrow a large percentage of the asking price.   This works well when property prices are rising but when prices fall equity is quickly wiped out.  With a 10% deposit, a 5% fall in property prices wipes out 50% of your investment.  Furthermore, mortgage interest needs to be serviced and if you are reliant on rental income to meet these payments, things can get difficult if you cannot find a suitable tenant.

It is also worth bearing in mind the cost of ownership.  The upfront cost of owning property includes stamp duty, mortgage fees and survey costs.  Most pension funds have no upfront charges.  The ongoing costs of property ownership can also be high when you factor in insurances, council tax and management fees.   Most pension funds have annual costs of between 1 and 2% of the fund value. When you come to sell a property estate agent and solicitor fees need to be paid and potentially there could also be a large tax bill to pay.

The argument is really about which asset class is likely to perform best over the envisaged investment timescale be it property, equities, fine wines , modern art or any other asset that is likely to increase in value of the longer term.  The most sensible approach to building funds for retirement is to have exposure to a range of asset classes and to hold them in the most tax efficient way possible and that is where pension schemes can play a part.   Pinning your retirement dreams on one single asset class is a risky thing to do, pinning them on one single property which is heavily mortgaged is even more risky.

The Value of Retirement Advice

A recent report by Unbiased, the Independent Financial Adviser search website, has revealed that 36% of those seeking independent financial advice do so in relation to retirement planning.

The large number of people seeking advice in this area is perhaps not surprising.  Despite “Pension Simplification” retirement planning remains complex.  Increased job mobility means that by the time they retire many people hold a range of pension plans, some occupational, some personal and unsurprisingly these plans are often not fully understood by those that hold them.

There may be a strong temptation to consolidate pensions in order to cut down on paperwork and ease the administrative burden but before undertaking any consolidation exercise, the benefits offered by your existing schemes should be thoroughly explored.  While older contracts may have higher charges they may also offer useful features such as guaranteed minimum growth rates or guaranteed annuity rates (the rate at which the capital will be turned into income once you retire).  If you have final salary pensions then a thorough analysis should be carried out to determine the viability of a transfer.

When you come to take benefits from pension schemes the options are again many and varied but unfortunately most people end up buying an annuity from their existing pension provider.  If annuity purchase is deemed to be the most suitable means of drawing income, it pays to shop around to get the best possible annuity rate.

Whilst it is crucial to take advice on making the most of your retirement funds it is equally important to ascertain the competence of your adviser.  Unfortunately the Financial Services Authority continues to uncover examples of poor advice in relation to retirement planning.  With increased longevity the effects of the decisions you make regarding your retirement could be long lasting and it is therefore vita that you take good advice and make the right choices.