Monthly Archives

July 2019

How Flexible is Your Pension?

By | Pensions

Prior to 2015 you had far fewer choices when it came to your retirement. For most people, their only option was to buy an “annuity” (fixed retirement income product) when they eventually retired. Today in 2019, however, there is much more flexibility.

If you want to, it is possible to continue working whilst receiving your pension benefits provided you meet certain conditions (e.g. you move from full-time to part-time work, or lower your grade). There is also the option to either buy an annuity to supply a retirement income or generate an income using a “drawdown” approach. You could even combine the two together!

This increased flexibility is great on the one hand, as it has opened up more opportunities in retirement for many people which better fit their goals and lifestyles. However, on the negative side, this new set of pension laws has made it far more complicated for people to effectively plan for their retirement.

At WMM, as financial planners, we regularly help clients in Oxford and further afield to navigate this complex landscape towards their retirement goals. In this article, we’ll be sharing a short guide on “flexible retirement” – how it works, as well as some of the opportunities and pitfalls to be aware of.

Please note that this content is for information purposes only, and should not be taken as financial advice. To receive tailored, regulated advice into your own situation and goals, please consult with an independent financial adviser.

Retire while you work

Depending on the precise rules of your pension scheme, it might be possible for you to wind down your hours in employment and start receiving your pension benefits after the age of 55.

This is known as “flexi-access drawdown”, and it allows you to take as much or as little as you want from your pension pot even as you continue to draw a salary from your employment.

However, the fact that you have this freedom does not automatically mean that you should use it. Depending on your particular financial situation and goals, it might be appropriate to access your pension benefits whilst employed – or keep it invested until you fully retire.

There are various advantages and disadvantages to both options. The arguments in favour of flexi-access drawdown include:

  • Reducing your hours in the office whilst maintaining a steady income stream from your salary and pension benefits, allowing you to focus on things you enjoy.
  • Irregularities and drops in your salary earnings can be “topped up” by your pension benefits, allowing you a sense of financial security and peace of mind.

On the other hand, you should also consider the following:

  • Most individuals are unlikely to have enough money in their pension pot to make flexi-access drawdown a sustainable option over the long term. Remember, you need your pension to help sustain you potentially into your 80s or 90s. Flexi-access drawdown could result in you needing to work for more years, compared to if you had started taking your pension benefits later.
  • Drawing upon your pension benefits early can affect your tax allowances negatively. For instance, it tends to trigger the MPAA (Money Purchase Annual Allowance) which reduces the amount you can contribute to your pension savings each year.

Retirement income options

In light of the above, you should consider talking through your options with a qualified financial adviser regarding when, exactly, you should start taking your pension benefits. However, even once you have an idea of your timescales, you need to consider how your retirement income will be sustained in the longer term.

As mentioned above, prior to 2015 most people needed to buy an annuity in order to fund their retirement lifestyle. This is no longer the only option since it is now possible for people to keep their pension pot invested during retirement whilst also drawing an income from it (i.e. officially known as “income drawdown”).

Arguably, this latter option carries much more flexibility for your retirement but also carries the risk of your income fluctuating, even going down, over time depending on the performance of your investment portfolio.

An annuity, on the other hand, allows you to “buy” a “fixed income” for the rest of your life. This tends to provide a greater degree of financial stability and certainty, yet it also restricts your options. Once you have bought an annuity, you cannot usually go back.

Everyone is different, so which route you take will completely depend on your personal goals and situation, and you should discuss these with a financial adviser to help determine the best course of action to take in your particular case. It is worth noting, however, that:

  • It is sometimes possible and appropriate to combine the two approaches. For instance, you could potentially buy an annuity with a portion of your pension pot whilst keeping the rest of it invested – whilst also drawing an income from it.
  • Whilst some people might benefit from buying an annuity once they fully retire, in some cases, it might be best to rely on income drawdown in the short term and potentially buy an annuity later on in retirement. One argument in favour of this approach says that you can always change your mind and buy an annuity later, but you cannot “un-buy” an annuity and go back to income drawdown later. On the other hand, you should be aware that the cost of an annuity might go up as you get older.

The Road to Financial Security & Confidence After Divorce

By | Financial Planning

Divorce isn’t a happy topic but is an important one if you or someone you know is going through it – especially when it comes to the finances.

It’s common for people to accept that lawyers will likely need to be involved with the divorce process, to sort through issues such as homeownership rights and custody of children. It is less prevalent for people to consider help from a professional financial planner.

Yet getting this help can be hugely important. Divorce not only affects your legal status, your emotional well-being and relationships but also what kind of lifestyle you can afford in the years ahead. Given the huge financial implications, it can be very valuable to get an experienced, dispassionate set of eyes on your financial plan to make sure you are carried forward into the best possible financial future available to you.

Of course, it can be very helpful to consult a financial planner during the process of divorce. However, this is also beneficial once you have concluded the legal proceedings and completed the divorce. Perhaps you are at this stage, feeling like you have just come through a whirlwind of emotions and that only now, have you been able to catch your breath and ask yourself: “Are my finances secure, and do I have enough now and for my future?”

It is quite possible that right now, after what could have been more than a year of divorce proceedings and paperwork, that you simply want to step back from thinking about your finances. Whilst we completely understand this reaction, it’s important that you look after yourself and ensure your own financial security. You don’t want to later come across problems or financial hardship, which could have been prevented with a bit of organisation and help from a financial planner.

Here, we’ve compiled a short checklist which you might want to consider with your financial adviser, to sort through your post-divorce finances. Please note that this content is intended to inform and provide inspiration, and should not be taken as financial advice. To receive regulated, personal advice into your own situation, please consult a financial adviser.

#1 Bank accounts

Do you still have a joint bank account open with your ex-husband or wife? If so, then now might be the time to close them – unless you have a very good, agreed reason to keep these open. Just be careful; remember that joint accounts could become a liability which comes to haunt you later on if your ex runs up a large debt or overdraft.

On a similar subject, if you have not already done so then it might be a good idea to review your own bank accounts. This might involve opening a new debit/credit card account, for instance. It is probably best to establish these accounts first, prior to closing any joint accounts.

#2 Insurance

After the divorce, it is quite likely that you and your ex are now living apart. In light of this, it likely makes little sense to keep his/her name on insurance policies for your home or car, for instance, especially if you might be able to get cheaper policies by taking out newer, more relevant one.

Pay particular attention to your life and home insurance. For the former, you might have a policy which would pay out a lump sum to your ex if you died. Do you still want this to happen? If not, then consider getting a new policy! For the latter, are there items covered in the policy which belong to your ex, which no longer resides with you? Does it make sense to keep paying into a policy which covers them in the event of damage, theft or loss?

#3 Emergency reserve

As a single person, it is now even more important to ensure that you have a financial safety net in place. You cannot rely on a partner’s income, for instance, if you lose your job or suddenly face a large, unexpected expense. Consider building up an emergency pot to cover 3-6 months of living expenses, just in case.

#4 Other insurances

Following on from the previous point, it is quite common for financial advisers to hear their newly-divorced clients speak of feeling “financial exposed”. This is often because they believe that they will have few people to support them financially if things go wrong.

One pay to alleviate this worry is to consider taking out insurance to continue providing you with an income in the event that you lose your job or can no longer work due to illness or injury (i.e. “income protection” and “critical illness cover”). An independent financial adviser should be able to assist you here, helping you discern whether these policies are appropriate and finding you a good deal to cover your needs.

#5 A new plan

When you were married, your financial plan (assuming you had one) was likely tied up in your joint financial goals and vision for the future. Now, you will need to identify a new set of financial goals for yourself – which means crafting a new financial strategy and plan.

In particular, what are your new, desired objectives and lifestyle for your retirement? Are you on track to achieve these, and if not how can you now make appropriate changes to your finances and wealth in order to set you on course?

This is where a financial planner can be particularly helpful. They can assist you in reviewing your current situation, establishing where you are in order to help you identify the best route to get you heading towards your financial goals. They can make you aware of tax laws and investment opportunities which you might not have thought of, and point out common traps which you might not have spotted on your own.

If you would like to discuss your own situation with us and speak to a financial adviser here at WMM, then we’d be delighted to hear from you. Please get in touch today to arrange a free, no-obligation meeting with a member of our team, to start the conversation.