Category

Pensions

Pension options for over-55s retiring within 12 years

By | Pensions

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxford).

Coronavirus has been a particularly stressful time for those looking to retire in the next 10-12 years. Many pensions have lost value since December 2019 as stock markets (which pensions tend to be heavily invested in) have taken a hit from the pandemic, lockdown and the resulting change in consumer behaviour and levels of concern.

Fortunately, equities have been steadily rising again across the developed world since the first quarter of 2020. The other good news is that there is still plenty of time to prepare for retirement for those who may be looking to finish work within 12 years. Below, our Oxford-based financial planning team here at WMM offers a handful of pension options for over-55s. Make sure you seek professional advice before acting on any of the below.

 

Leave your pension(s) invested

In 2020-21 the UK’s pension rules allow you to start taking money from a defined contribution pension once you reach age 55. You can withdraw up to 25% tax-free, for instance. However, just because you have this choice does not mean you should take it. You could leave the fund invested, allowing it to grow further so that you can enjoy a more comfortable lifestyle when you do eventually retire. However, it may be worth speaking to your financial planner about whether you could invest in lower-cost, better-performing funds to increase your real returns. It can also be wise to re-evaluate your contributions. Increasing them, for instance, could result in more money saved in retirement – allowing your pension(s) to stretch further.

 

Buy an annuity

In light of the pandemic, many people are attracted to an annuity. This is because it can provide a guaranteed, inflation-linked income throughout retirement. Some will be attracted to the financial stability and predictability this offers. Yet it’s important to consider that you may not get as much future monthly income from an annuity compared to income drawdown. In 2020, moreover, annuity companies have been affected by the pandemic. It may be wise, therefore, to consider ways to spread out your pension risk.

 

Take everything out at once

Of course, you may be tempted to empty your pension from the age of 55. Yet most financial planners would caution against this, since it’s likely to result in you not having enough money later in retirement. There are only specific circumstances in which this may be wise – e.g. if you have been diagnosed with an illness certain to result in death within the next 12 months.

 

Transfer your pension(s)

Pensions come in different shapes, types and sizes. Some involve building a pension pot over time with your employer, for instance (i.e. a workplace defined contribution pension). Others, such as final salary pensions, grant you an income in retirement from your employer based on criteria such as your years of service and salary in employment. There are advantages and also disadvantages to each of these pensions, so it may make sense to transfer from the latter to the former in certain cases (e.g. if you want to leave your pension as an inheritance one day). Bear in mind, however, that this is a big decision that cannot be reversed once made. You can also only move from a final salary pension to a defined contribution scheme – not vice versa.

 

Invitation

There are many other options available for over-55s who are thinking about retiring within the next 12 years or so. Above, we’ve outlined an overview of just some of the possible options. The important thing to remember is that your decision(s) regarding your pension is likely to have significant repercussions on when you retire, and what that retirement will look like. As such, it’s always worth considering professional advice to make sure you make the best decision.

Interested in finding out how we can optimise your financial plan and future income prospects? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.

You can call us on 01869 331469

 

Pension options for WASPI women in light of the court’s decision

By | Pensions

A fierce battle has been going on in the Court of Appeals recently. Many women born in the 1950s have been fighting for compensation after seeing their state pension age gradually rise from 60 to 65 in the past ten years. The case has recently concluded with a ruling that the state pension rise does not discriminate against WASPI women (Women Against State Pension Inequality), and so the Court has upheld the law. Given this decision, what options might now be available for women in the 50s who are looking to develop their retirement plan?

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Why Pension Awareness Day 2020 Matters

By | Pensions

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxford).

Did you know that the UK celebrated its Pension Awareness Day on the 15th September 2020? If it skipped past you, then you are not alone. Much of the media attention on COVID-19, trade disputes and other matters have largely obscured this important day from the public. Yet it has arguably never been more vital to hear the message of Pensions Awareness Day, namely: “Are you saving enough money for retirement?”

The sad answer to this question is that many people are not. Here at WMM, our Oxford-based financial planning team is striving to be part of the solution to this problem. In 2020 and in the years ahead, it is now likely that an individual’s retirement will span more than 30 years (as opposed to perhaps less than a decade in the 1900s – when the state pension was introduced). This means that people’s pensions will likely need to stretch further. Yet a UK government report suggests that as many as 12m people have little or no pension savings at all.

 

People and pensions are changing

Many people in the UK seem to assume that the state will simply look after them when they get old – much like the NHS is expected to provide free care when they get sick. Unfortunately, this assumption is not correct. In 2020-21, the full new state pension provides £175.20 per week – a sum which most cannot reasonably live on by itself.

Another complicating factor in all of this is the fact that the pensions landscape is changing. In the recent past, many workers would have access to a defined benefit (or “final salary”) pension which paid a guaranteed income in retirement until death. This – in combination with your state pension – was often enough to live on comfortably, indefinitely. In 2020, however, this kind of pension is increasingly rare. More commonly, workers now have a defined contribution pension which involves building up a pot of money for retirement. Whilst this offers advantages over a defined benefit pension, it does leave open the possibility that you might run out of money without careful retirement planning.

 

Lack of awareness and understanding

One of the big challenges that financial planners must help people overcome is the complexity of pensions. Many people feel intimidated by the subject and so delay the decision to start thinking seriously about it (by which point, much valuable time for saving has been lost). One survey by the ONS, for instance, suggests that only a minority of 35-44 year olds agree with the statement: “I feel I understand enough about pensions to make decisions about saving for retirement”. Older survey respondents also showed disturbing results, with one-fifth of 45-year olds saying that they thought their pension would not meet their expense requirements when they retired. Around 10% said they were unaware if they had saved enough, or not.

 

Financial planning for everyone

Retirement planning and pensions is not simply for the “super rich”. Everyone needs to think about how they will meet their financial needs in their 50s, 60s and beyond. Some will want to keep working, yet most will want to retire in some fashion. Here, the message of Pension Awareness Day invites you to reach out to a financial adviser/planner and to take early steps to prepare for your future. At worst, you spend some time discussing some of your options with a professional during a free consultation and then go on your merry way. At best, you chart a course together which moves you towards an inspiring set of financial goals in retirement.

 

Invitation

Interested in finding out how we can optimise your financial plan? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.

You can call us on 01869 331469

 

Pensions and the gender savings gap

By | Pensions

There is good news and bad news. For the good news, you may be encouraged to hear that since 2017, the average pension pot has grown significantly in size. In 2020, employees in large firms in the UK have an average of £120,000 in their pension pots – up 35% from 2017. Yet the bad news is that there is still a large gender gap here.

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Is the state pension triple lock safe in 2020?

By | Pensions

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxford).

If you’ve been following the financial news in May 2020, you’ll likely have noticed the headlines about the state pension triple lock. Our financial planning team here in Oxford have certainly had plenty of enquires about this. In summary, most questions were about whether the “triple lock” can be sustained following the huge increase in government spending from March 2020.

In this article, we will be examining the likelihood of this change and the possible implications. We hope you find value in this content. Get in touch to join our mailing list for the latest updates, or request a free consultation if you’d like to discuss your own retirement planning needs with a member of our team: 01869 331469.

 

The triple lock & COVID-19

For those unfamiliar with the triple lock system, it was introduced in 2010-11 to ensure that state pension payments rose by 2.5% per year to keep up with the rising cost of living. In 2020-21, for instance, the new full state pension rose to £175.20 per week – up from £168.60 in the prior financial year. However, there are noises from the government that they could announce a suspension or abolition in the triple lock.

The reasoning behind this speculation appears to be linked directly to COVID-19. The March 2020 budget to combat the pandemic announced £30bn in extra spending (added to £18bn of other spending pledges). This has been called the biggest budget “giveaway” since 1992, and is estimated to add another £100bn in public debt over the next four years. As such, the government is now looking for ways to save money and bring stability to the economy. Stopping the “rising cost” of the triple lock could save £8bn a year and £20bn over five years; hence its focus at this time.

 

Likelihood & financial planning implications

This is obviously concerning to those currently relying on their state pension for an income in retirement, or those who plans depend on it. Whilst our Oxford financial planning team cannot predict the future, it is worth noting that the Conservatives tried to abolish the triple lock ahead of the 2017 general election, but changed course to secure power with the Democratic Unionist Party (DUP). This time, the government has an 80-seat majority and strong incentive to rein in areas of public spending. Time will tell, of course, whether or not the triple lock will be axed in 2020.

The possible implications for financial planning are what concern us here. It’s worth noting that, had the triple lock not been established in 2010, then pensioners today would be getting about £10 less per week (i.e. £525 per year). As such, if the triple lock is indeed suspended or axed, then it will be necessary for many people to revisit their financial plan. For some already in retirement, they might need to accept a slightly lower income each year. Others yet to reach State Pension Age might need to increase their workplace or personal pension contributions to try and make up for some of the shortfalls. Indeed, in certain cases this might mean reassessing your planned date of retirement, to give more time to build up your pot and national insurance record. However, here at WMM, we aim to help you find realistic ways to achieve your retirement goals. Do get in touch if you are in Oxfordshire and are concerned.

 

Invitation

If you are interested in starting a conversation about your own financial plan, then we’d love to hear from you. Get in touch today to arrange a free, no-commitment consultation with a member of our friendly team here at WMM.

Call us on : 01869 331469

 

4 ways to build a healthy retirement fund

By | Pensions

Planning for retirement in the UK used to be far simpler. Many people could simply work with one employer throughout their lifetime, and expect a final salary pension to carry them through retirement. Since the 2015 Pension Freedoms, however, the options have widened, bringing more flexibility as well as complexity.

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4 key components to a robust pension plan

By | Pensions

Many people are faintly aware that they should be saving towards their long term future. Why are pensions so often recommended by financial advisers as a way to achieve this? The answer is fairly straightforward. In 2019-20, a pension offers a tax-efficient long-term savings plan, with other important benefits depending on your scheme.

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Make Sure You use these 3 Pension Benefits

By | Pensions

Pensions have many huge advantages that make them a powerful component of retirement planning. Not only are there opportunities to boost the size of your pension pot using tax relief, but in 2019-20 your defined contribution pension(s) is also not counted as part of your estate for inheritance tax purposes (allowing you to pass the money on tax-free).

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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.