In a bold move aimed at incentivising individuals, particularly healthcare professionals, to extend their working years, the UK government announced the abolition of the Pension Lifetime Allowance (LTA) in the 2023 Autumn Statement. Set to take effect from April 6th, 2024, this decision seeks to encourage more people, especially doctors, to remain active in their professions for longer durations.
Abolishing the LTA
The abolition of the LTA is expected to benefit individuals with substantial retirement savings, as well as public sector workers with sizable final salary schemes. However, amidst the anticipation of this policy change, concerns have been raised within the industry regarding the pace of implementation and its potential implications for customer advice and outcomes.
Industry experts have called for clarity and guidance on the new rules and regulations, urging the government to provide further details to facilitate a smoother transition. Some industry leaders have even advocated for delaying the implementation of the abolition until 2025 to ensure a more seamless adjustment period.
Despite the abolition of the LTA, complexities persist within the pension system, including caps on tax-free lump sums and lump sum death benefits, adding layers of intricacy to navigating the new regulations.
Review of State Pensions
In addition to the abolition of the LTA, the government's 2023 Review of State Pensions shed light on the challenges posed by increasing life expectancy and the fiscal sustainability of the State Pension. As the retirement age is set to rise to 67 between 2026 and 2028, questions arise regarding the government's commitment to intergenerational fairness.
The triple lock mechanism, which guarantees State Pension increases by the highest of inflation, average earnings growth, or 2.5%, continues to be a focal point of discussion. Despite criticisms regarding its cost and fairness, both the Conservative and Labour parties have shown reluctance to reform the triple lock agreement, emphasizing the importance of safeguarding pensioners' financial security.
It remains crucial for individuals to stay informed and proactive in managing their pension plans amidst evolving regulations and policies.
Shampa Roy-Mukerjee is an Associate Professor (Economics) and Director of Innovation and Impact, at RDSBL, UEL.
This marks another milestone in the pressure to be ‘green’ when investing. Scheme members are already expecting to see a responsible investment approach from their managers, adding to the pressure for trustees to produce a coherent and measured sustainability strategy. These disclosures will further fuel a movement towards responsible pension investing.
In July 2021, pensions minister Guy Opperman described climate change in no uncertain terms, as a “major systemic financial risk and threat to the long-term sustainability of UK private pensions.” While the challenge is very real and very clear, finding the right green pension solution is unfortunately not always as straightforward.
Everyone wants their investments to help in the transition to net zero, but there’s significant debate around how best to make a difference and whether taking ESG into account will affect financial performance.
Empowering investors
At Coutts, we believe that only by understanding which actions taken by investment managers truly make a difference to the sustainability and profitability of companies can we have the fullest impact on the transition to net-zero.
Increased knowledge and communication about effective ESG investing is the key to meaningful change. The default response for many people is to simply shift their allocations to so-called ‘green’ investments, or those that already derive most of their revenue from sustainable activities. Yet the reality is that simply shifting investments from fossil fuel businesses to solar farms won’t be enough to make a difference for the planet.
Such a switch ignores those companies that need support to transition to a net-zero economy, and already have credible plans to do so - even if they are not there yet. We are keenly aware that sustainability is a journey which cannot be undertaken alone. It’s vital we engage with companies at every stage of their path to net-zero and help them change for the better. Research shows that collaboration and engagement adds value, as well as being a truly sustainable approach. At Coutts, we want to lead by example and to encourage others to do the same.
The role of investment managers
Finding out which companies are in the process of effecting a credible transition to net-zero requires serious commitment. It relies on a deep understanding of a company’s operations and strategy which requires relationship and expertise on behalf of investment managers, rather than a kneejerk divestment response. Managers who truly engage, question and are willing to challenge the practices that companies are engaged in can effectively manage the risks to pension funds, as well as make an impact on the planet.
By engaging on these issues, rather than simply divesting, managers can build value and improve outcomes.
A focus on engagement
At Coutts, when choosing where to invest, we focus on stewardship, through both voting and engagement, as well as ESG integration. We know that how a company reacts to its investors, as well as how it integrates its ESG goals, can be financially material – as these aspects of governance are indicative of good management and understanding of risk.
We’re also aware there could be positive financial outcomes when investors engage with investee companies over their low ESG ratings. For example, a 2021 study found that engagement with companies with low ESG ratings could be correlated with financial outperformance compared to their peer group.
The future of green pension funds
As the transition to net-zero continues, all of us will have a responsibility to engage with the businesses we invest in over their investment approaches, climate risk and their plans to reduce it.
Government edicts about reporting on climate change are important but can only do so much. It is also up to us, as investors, to engage positively with the companies we own, to make the biggest difference possible and mitigate the climate-related risks for our members.
At Coutts, by keeping up our rigorous approach to the companies we invest in and continuing to challenge them on their path to net zero, we know we are taking a truly sustainable investment approach, best for our clients, and the planet.
For more information, go to https://www.coutts.com/
But how do equity release schemes work, and is this a good way to fund your retirement? This article will explore how equity release schemes work and the benefits and drawbacks of using them to fund your retirement.
The Large Sums And Equity Schemes
The first step in using an equity release scheme to fund your retirement is understanding how these schemes work. Equity release schemes allow you to access the large sums of money that are tied up in your home.
The value of your home is determined by its market value, minus any outstanding mortgage or loan payments. There is an option to use the equity release max interest rate release calculator to estimate how much money you could potentially access through an equity release scheme. With this estimate in hand, you can start to compare different equity release options to see which one is right for you.
A Lifetime Mortgage
The equity release scheme of a lifetime mortgage does not require you to make any monthly repayments. Instead, the money you borrow through an equity release scheme is repaid when your home is sold after your death or moved into long-term care. This means that you can use the money from your equity release scheme for anything you want - including funding your retirement.
With this sort of lifetime mortgage, you take out a loan against the value of your home. The amount of money you can borrow through a lifetime mortgage will depend on your age, the value of your home, and the type of equity release scheme you choose.
A Home Reversion Plan
Another option for funding your retirement with equity release is to sell all or part of your home. This option is known as a home reversion plan. With a home reversion plan, you sell all or part of your home to an equity release provider in exchange for a lump sum of cash or a regular income. Unlike a lifetime mortgage, you will not have to make any repayments on the money you receive from a home reversion plan.
The amount of money you receive from a home reversion plan will depend on the percentage of your home that you sell and the current market value of your property. For example, if you sell 50% of your home for £100,000, you will receive £50,000 from the sale.
It's important to note that you will not be able to access the money tied up in your home until you sell it or move into long-term care. This means that if you need to access the money sooner, a home reversion plan might not be the right option for you.
Downsizing
With this option, you sell your current home and use the proceeds to purchase a smaller property. The equity from the sale of your previous home can be used to supplement your retirement income. Downsizing is a good option if you are looking to simplify your life and reduce your monthly expenses.
It's important to note that downsizing comes with its own set of costs and challenges. For example, you will need to pay for the cost of moving, as well as any stamp duty associated with buying a new property. You will also need to be sure that you are happy with the smaller property you are moving to.
Before deciding whether downsizing is the right option for you, it's important to speak with a financial advisor. They can help you weigh the pros and cons of downsizing and determine if it's the right decision for your unique situation.
Benefits Of Equity Release Schemes
Several benefits come with using an equity release scheme to fund your retirement. One of the biggest benefits is that you will not have to make any monthly repayments on the money you borrow. This can free up a significant amount of money each month, which can be used to fund your retirement.
Another benefit of equity release schemes is that they can provide you with a lump sum of cash that can be used for anything you want. This lump sum can be used to pay off debts, make home improvements, or simply provide you with extra spending money in retirement.
Finally, equity release schemes can provide you with peace of mind in knowing that you will have money available to cover your expenses in retirement. This can be a valuable asset if you are worried about outliving your retirement savings.
Which Scheme Is The Best For You?
The best way to choose an equity release scheme is to speak with a financial advisor. They can help you compare the different options and find the right one for your needs. However, some general things to keep in mind when choosing an equity release scheme include:
- The amount of money you need
- The size of your property
- Your age
- Your health
- The value of your property
- Your financial situation
Equity release schemes can be a great way to fund your retirement. However, it's important to make sure you understand how they work and what consequences they carry before deciding if one is right for you.
Equity Release Can Reduce the Value of Your Estate
It's important to note that equity release schemes can reduce the value of your estate. This is because the money you borrow through an equity release scheme will need to be repaid when your home is sold. This means that if you are considering an equity release scheme, it's important to speak with your family members about your decision. They need to be aware that the value of your estate may be reduced when you die.
The reduction happens because the amount that is repayable to the provider is deducted from the final sale price of your property. For example, if you have a loan of £100,000 with an interest rate of 5%, the amount repayable to the provider would be £105,000. This means that your estate would only receive £95,000 from the sale of your property.
This is an important consideration to make, as it can have a significant impact on your family's financial future. However, if you do not have any heirs, an equity release scheme can be a good way to ensure that your home is sold for its full value when you die.
It Can Be Expensive
Another downside of equity release schemes is that they can be expensive. The interest rates on equity release schemes are typically higher than the rates on traditional mortgages. This means that over time, the amount you owe can increase significantly, and the cost will be passed on to your heirs when you die.
If you fall behind on your repayments, the interest on your equity release scheme will start to accrue. This means that the amount of money you owe will increase over time, and you could end up owing more than the value of your property. If this happens, your home could be at risk of repossession.
To avoid this, it's important to compare the fees of different equity release providers before deciding on a plan. For example, some providers charge an arrangement fee, while others do not. That's why it's important to compare the interest rates of different providers to ensure you are getting the best deal possible.
Are You Eligible?
Not everyone is eligible for an equity release scheme. The eligibility requirements vary from provider to provider, but typically you must be over the age of 55 and own your home outright. If you have a mortgage, you will not be able to use an equity release scheme to pay it off. This is because the equity release provider will take charge of your property. This means that if you have a mortgage, the provider will be second in line to receive payment from the sale of your property, after your mortgage lender.
Therefore, you'll need to make sure that the mortgage is paid off before you can apply for an equity release scheme. Pay attention to the eligibility requirements of different providers to make sure you are eligible for the scheme you are considering.
The Conditions And Consequences
If you're thinking about using an equity release scheme to fund your retirement, it's important to be aware that you may need to move house. Most equity release schemes require you to have your home valued every few years and if the value of your property decreases, you may be required to move to a smaller property or downsize.
It's also important to be aware of the conditions that are attached to equity release schemes. For example, most providers will require you to take out an insurance policy to cover the cost of the loan if you die before it is repaid. This, on the other hand, means that your family will not have to worry about repaying the debt.
Additionally, most equity release schemes have an early repayment charge. This means that if you decide to repay the loan early, you may be charged a fee. You should also be aware that equity release schemes can harm your credit score. This is because taking out an equity release scheme will appear on your credit report as a debt. If you miss a payment, it will harm your credit score.
You May Need To Pay Taxes On The Money You Release
If you're thinking about using an equity release scheme to fund your retirement, it's important to be aware that you may need to pay taxes on the money you release. The amount of tax you pay will depend on how much money you release and when you release it. For instance, if you release £40,000 from your property value when you retire at age 65, you will likely pay no tax on the money. However, if you release the same amount of money when you're 75, you may be liable for capital gains tax.
It's also important to be aware that the equity release provider may charge a higher interest rate if you're released from your property value when you're older. This is because the provider will want to recoup the money they lost by lending to you for a longer period.
The taxes also depend on how you use the money you release. For instance, if you use the money to buy an annuity, you will not have to pay any tax on the money. However, if you take the money as a lump sum and invest it in shares, you may be liable for capital gains tax.
Equity Release Schemes Are A Long-term Commitment
Once you enter into an equity release scheme, you will not be able to cancel it or change your mind. This means that you need to be sure that you are comfortable with the terms of the agreement and that you will be able to keep up with the repayments. Imagine if you suddenly needed to move house or needed to access the money for another purpose - you would not be able to do so.
Therefore, equity release is not a decision to be taken lightly. You need to be sure that you are comfortable with the terms of the agreement and that you will not need to access the money for any other reason.
Equity release schemes are becoming an increasingly popular way for people to fund their retirement. By allowing homeowners to unlock the value of their home to use the money however they please - they can use it as a retirement fund as well.
However, there are some important things to be aware of before you decide if this is the right option for you. For example, you may need to move house, and you will need to be comfortable with the terms of the agreement as it is a long-term commitment. With that being said, equity release can be a great way to fund your retirement if it is the right fit for you.
The Resolution Foundation claims that uprating benefits by 8.1% rather than the planned 3.1% to keep up with inflation would be far more beneficial than abandoning the government's planned national insurance increase. According to the thinktank, this would deliver, “four times more support to the bottom half of the income distribution per pound spent, than scrapping the rise in national insurance contributions (NICs).”
The Resolution Foundation’s report suggests that scrapping the 1.25 percentage point rise in national insurance contributions for employees and employers would lead to half of the gains going to the richest fifth of UK households. While an 8.1% rise in benefits and pensions would set the government back approximately $9 billion, it would see three-quarters of the support go to people in the lower half of UK incomes.
The Resolution Foundation’s recommendations come as its principal economist, Adam Corlett, warns that “rapidly rising inflation is on course to bring about the biggest income squeeze families across the UK have faced since the 1970s [...] Low-to-middle income households will be hardest hit by the cost of living squeeze, especially when the energy price cap rises and should therefore be the priority for support.”
For example, if you have a more sophisticated financial situation, universal life insurance can help you achieve multiple goals like providing a death benefit from your family, while also helping you accumulate funds that you could use to supplement your retirement income. Here are some other ways to consider planning for early retirement in 2021.
1. Make the most of your savings
It’s no secret that saving is an essential component of retirement, but putting everything into a savings account isn’t going to cut it for most people. When you’re getting ready for your eventual retirement, be sure to consider what sorts of retirement savings programmes are available to you through your employer or other means. Examples may include an individual retirement account (IRA) or a 401K, which are designed to help you grow a nest egg in a tax-advantaged way. Be sure to consult a professional financial advisor about the best investment products and strategies that are available to you.
2. Put in the hard work now
While you’re young and have the energy, make the most of it by working hard. In addition to your primary income, there are a plethora of other things you can do to earn extra income on the side and reach your financial goals faster. For example, if you do gig work on the side as a freelancer or independent contractor, that can be a great way to earn extra income, but keep in mind you’ll owe taxes on the additional income and you may have to pay quarterly estimated taxes. Be sure to keep track of any expenses you incur while freelancing or operating your side business so that you can accurately report your profits and losses, and offset your tax obligation with any eligible itemised deductions.
3. Protect your progress with life insurance
Planning for retirement isn’t just about not working anymore--it’s also about building your legacy for the people you care about the most. While you’re in the process of building your retirement nest egg, you want to make sure the people who depend on you financially don’t face financial hardship if something happens to you. Some types of life insurance offer more than a death benefit to create that safety net for your beneficiary(ies). Some life insurance policies offer cash value, which accumulates over time. This can make some types of permanent life insurance a very useful tool for financial planning for retirement and beyond. Be sure to consult a financial advisor to go over your best options.
The bottom line
Early retirement is best made possible with proper planning. The more you can earn and save now, the sooner you’ll be able to retire early and/or reach other financial goals. Just be sure you have the right assurances in place so that all your hard work is never in vain.
Within these schemes, both employee’s contributions and employer’s contributions are invested. The proceeds are then used to buy a pension and/or other benefits at retirement.
According to the latest CBI/Mercer Pensions Survey, most employers (86%) continue to see a strong business case for providing competitive workplace pensions, despite the difficulties of the pandemic. The same percentage of companies also said they feel a moral obligation to help employees to save for retirement. The survey was completed by 221 firms across the UK.
Meanwhile, 76% of senior executives who responded to the survey said they believe that, going forward, business contribution rates higher than the current 8% statutory minimum will be required to ensure staff have an adequate income in retirement.
Meanwhile, the UK government says that from October 1, pension schemes with an asset value of £5 billion or above must report the risks and opportunities that the climate crisis poses to their investments.
According to the survey, 47% of UK companies with a defined contribution scheme say that disclosures will be a helpful way to engage staff with their future savings. However, understanding the requirements is low amongst trustees (8%) and employers (5%). Many businesses believe the cost of publishing complaint TCFD-aligned disclosures will be larger than the government’s £15k estimate.
As you enter retirement, you may feel as though you are already set for life. With all the money you have saved and the pension checks you will be receiving, managing your money should be the least of your worries. However, investing doesn't end with you hanging up your boots. It's a process that continues well into the future. After all, you still need to prepare for any contingency that comes your way and, more importantly, build a fortune you can pass onto the next generation.
Money doesn't keep on flowing when you retire, so it's important to put your savings and pension funds to work. Here's a guide to help you along this path towards gaining financial freedom and stability as well as giving your loved ones something they can inherit.
Set clear financial goals
What will you want to achieve once you have retired? Will you travel the world? Will you move into a quieter and healthier community? Everyone has a clear vision of what they are going to do during retirement, but living the good life shouldn't be the only thing in mind.
Financial stability and building enough inheritable wealth should also have a place in your list of goals during retirement. Your main goal here is to maximize whatever fund sources you have. From this, it will be easier for you to develop a sound investment strategy that works for you in the long run.
Start early with a risk-proof plan
Sound financial planning should start long before you retire. As you enter the last years of your career, you need to take this time to work out your financial plans for after. You may have already saved enough cash in your retirement account, but you need to know how to allocate and spend them on stable investment vehicles.
Sound financial planning should start long before you retire.
Why is it important to plan early? The answer is simple: Inflation. As you save money in your retirement savings, these funds will lose value over time, depending on current and forecasted economic situations. In other words, your retirement money is at the mercy of the economy at-large. You can’t just keep cash in the bank. You should also look for investment vehicles that are guaranteed to grow your cash.
It’s always sound advice to do your research as early as possible, compare potential investment options, and come up with a financial game plan that serves as a hedge against economic volatility.
Avoid getting too aggressive
As a retiree, the world is your oyster! You can do whatever you want with the wads of cash you have. While you may have the freedom to choose an investment option that’s supposed to generate high yields, being too aggressive sets you up for failure.
In today’s financial environment, the best rewards often go towards strategic players — and not players who go all-in. Financial advisers will tell you that as a good rule of thumb, you need only to go for investments that provide enough cash flow to keep you within your goals. The worst thing you can possibly do is to invest all your assets without maintaining enough reserves for future expenses. You know exactly what happens if you put all your eggs in one basket.
Diversify
It matters a lot to know where you invest all your retirement in. If you started early with retirement planning, you may include stocks, bonds, and other securities in your financial strategy.Then again, building a solid portfolio shouldn’t rely heavily on securities as these are highly vulnerable to volatility. It’s sound advice to invest in things you are familiar with, but narrowing your strategy to a single asset class won’t secure you for the long-term.
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Diversification is still an effective strategy for reducing risk and limiting your exposure to economic disruptions. Along with securities, you should also look towards alternative investments that work well against uncertainty. These passive income options include real estate (specifically, commercial properties and rental housing), trusts, and qualified opportunity funds. You can also look into precious metals, variable annuities, and even cryptocurrencies like Ethereum and Bitcoin.
When it comes to securing your future as a retiree, it pays to broaden your investment horizons. Still, before you start diversifying your portfolio, take time to study each vehicle and the ways you can maximize them.
Avoid the “hype train”
When it comes to investments, people will always flock to where influencers go. For someone who is new to investing, keeping up with other investors might seem like an effective way to manage uncertainty. However, putting all your assets in hyped-up stocks will only set you for a very hard drop if these stocks result in bubbles.
As a retiree, you wouldn’t want to jump into the hype-train thinking it’s a sustainable way to maximize your retirement funds. Nothing ever comes out of being too aggressive. You may have a lot to spend in your retirement, but overlooking certain details and making emotional decisions in the process spells trouble. It only increases the risk of losing everything you have as well as everything you are supposed to earn during retirement.
At the end of the day, planning for your retirement helps you build a more stable future even in the midst of economic disruption. To live comfortable well into the later years of life requires foresight, wisdom, and sound planning.
Andrew Megson, Executive Chairman at My Pension Expert, looks at the sources of distrust in financial services and how the industry can turn its image around.
Today, the topic of trust in financial services looms large. With decades of mis-selling PPI, investment scandals, and zero industry transparency, it is little wonder that many individuals have a hard time engaging with financial advisers.
This is a crying shame. Advisers play a vital role in helping people develop a tailored financial strategy and achieve their monetary goals – the current climate of economic volatility has only accentuated their importance.
The financial pressures brought on by COVID-19 have upended many people’s financial strategies. Individuals have been forced to dip into their savings or, in some cases, even bring forward their retirement date due to redundancy. Naturally one would assume that it would pay to consult a professional when re-evaluating retirement and investment strategies.
Yet, Britons are still reluctant to seek advice. According to research from My Pension Expert less than two thirds (38%) of UK adults ever sought the help of an IFA. Even amongst those aged 55-plus and approaching retirement age, this figure stands at only 46%.
Such figures are concerning. They suggest that many people are making complex financial decisions unaided. And without an in-depth knowledge of the industry, or various financial products, they might find themselves worse off in the long term. Clearly, urgent action is needed.
Re-tracing the history of adviser fees
Adviser practices have certainly been questionable over the years, with little to no transparency surrounding how adviser fees were calculated, and many individuals in the industry working on commission and resorting to pushy sales tactics.
With decades of mis-selling PPI, investment scandals, and zero industry transparency, it is little wonder that many individuals have a hard time engaging with financial advisers.
Worryingly, My Pension Expert’s aforementioned survey revealed that almost one in five (18%) of individuals lost money following the recommendations of a financial adviser in the past. Likewise, a further 26% of UK adults said that they felt pressured into purchasing a financial product, despite not fully understanding what it was. And it these negative experiences that have shaped Britons’ opinion of advisers.
Thankfully, in 2012 the FCA took action to tackle unethical practices with the retail distribution review (RDR). This means that IFAs are now only able to offer fee-based advice.
But in spite of the great strides made by the FCA, the regulatory changes have not been enough to mend savers’ relationships with intermediaries. Indeed, many are steadfast in their belief that financial advisers will not act in their best interests.
Too much choice can be a bad thing
As a consequence of such deep-rooted mistrust, many people prefer to make their own decisions about how to handle their pensions and investments.
This is troubling, as there are such a vast array of savings and investment products on the market for savers to choose from, individuals may fall victim to rushed and ill-informed decisions.
Indeed, too much choice can sabotage the ability to make well-reasoned and logical decisions. Research in academic settings, including a notable study conducted by Columbia University suggests that this is the case, as the group of subjects with more choices made knee-jerk decisions, compared those with fewer choices, who made their choices based on greater reason and individual preference.
Apply these insights to the world of financial planning, and problems start to rear their head. Our survey uncovered that the majority (65%) of individuals prefer to free guidance that can be found online, instead of seeking out independent financial advice. And although many will have a good grasp of their finances, relying solely on self-governed advice can be particularly harmful in the long-term.
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Repairing broken bonds
Clearly, the industry needs to do more to repair its damaged reputation.
In addition to the FCA’s work, a good start in this regard would be for the regulatory body to make the benefits of independent financial advice more widespread. Take for example, the fact that regulated financial advisers are obligated to reinstate an individual’s original financial position if their advice leaves them worse off. Few savers know this, and many might be more willing to take advice safe in this knowledge.
Further to this, the results of My Pension Expert’s survey suggests that individuals also want to see the FCA come down even harder on unscrupulous advisers, with the overwhelming majority (78%) of respondents stating that they wanted to see harsher punishments for IFAs engaging in unethical practice. Meanwhile, a similar number (73%) believe that tighter regulations surrounding independent financial advice are in order.
Ultimately, the financial services industry has some work to do when it comes to restoring its reputation. Particularly as the UK progresses along on its roadmap out of lockdown and the economy eventually stabilises, savers are likely to remain in need of regulated financial advice. Although it will not happen overnight, so long as the industry takes steps to improve transparency and public understanding, I have every confidence that individuals will be more willing to seek advice to secure their financial futures.
New research has found that average women in their twenties today will have £100,000 less in their pensions than their male peers upon retiring.
The report was produced by pensions firm Scottish Widows to coincide with International Women’s Day, which found that women in the first 15 years of their careers on average save about £2,200 a year, compared to £3,300 for their male counterparts.
Lower average earnings, part-time work and the need to take time out of employment to care for family all cut into savings and are setting women back by almost four decades compared to men, the firm stated. The average young woman today will need to work 37 years longer than a man to reach “retirement parity”.
The COVID-19 pandemic has further widened the gender pension gap, the firm continued. 36% of employed women under the age of 25 work in areas such as hospitality and retail, which have been among the sectors hardest hit by the health crisis, and over 49% have been furloughed.
"We know that young women have been some of the hardest hit by the short-term financial impact of the pandemic and this has only exacerbated the challenge of reaching pensions parity,” said Jackie Leiper, Scottish Widows’ managing director of pensions.
However, the firm found that if women could increase their pensions contribution by 5% from the beginning of their careers, they could almost completely close the gap by the time they retire.
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“By taking control of their contributions and increasing them as early as possible, young women stand a fighting chance of improving their long-term savings outlook,” Leiper said.
A spokesperson for the Department for Work and Pensions drew attention to the government’s pension reforms and increased pension participation among women in the private sector, which rose from 40% in 2012 to 86% in 2019.
Andrew Megson, executive chairman of My Pension Expert, offers his advice to savers aiming to get the most out of their finances for retirement.
The beginning of the new year has been just as turbulent as the one that came before it. Indeed, COVID-19 cases and hospital admissions are increasing once more, consequently driving the UK into its third lockdown since the beginning of the pandemic.
Yet despite this sombre start to 2021, the arrival of a new year presents marks a fresh start for individuals everywhere, with many taking the opportunity to better themselves – especially when it comes to the state of their retirement finances. After all, January remains a popular time for older members of the workforce to consider setting their retirement date.
Inevitably, many people are wondering what they can do to ensure that their pension pot remains in good health. So, here are some pension planning tips worth considering in the new year, to help savers secure a relaxed and financially secure retirement.
Devise a suitable retirement strategy
It might seem like a fairly elementary suggestion to make, but developing a sustainable retirement plan is a vital factor many adults dismiss. According to a recent My Pension Expert survey of over 900 UK adults aged 40 and over, a staggering 42% admitted that they had no clear retirement strategy in place.
In these circumstances, it is vital to seek some independent financial advice. An adviser will be able to offer a helping hand when it comes to devising a retirement plan that suits their client’s specific needs.
It might seem like a fairly elementary suggestion to make, but developing a sustainable retirement plan is a vital factor many adults dismiss.
Take the hassle out of savings
We are all inundated with a million and one things to do during the working week, so often the subject of pension contributions is left in the sidelines. As such, individuals should consider how they can make saving for retirement as hassle-free as possible.
If you have a workplace pension, this shouldn’t be too tricky. The way this usually works, employers simply deduct an agreed sum from an employee’s salary to count as their pension contribution. The result is that this is an easy process, unless individuals want to increase their contribution at any time.
Alternatively, those with a personal pension should consider setting up a direct debit to replicate this process. In this way, contributions can be made with minimal effort.
Tracking down old pension pots
In today’s increasingly fluid jobs market, it is common for individuals to have worked for up to 10 (or more) different companies throughout their career. So, by the time an individual has reached retirement age, they will have amassed a number of pension pots. As a result, it can be easy to lose track; indeed, nearly a third (31%) of UK adults aged 40 to 54 have lost track of their pension pots, according to recent research from My Pension Expert.
To make things simpler, the government offers a helpful tracking tool, which should go some way to help pension planners locate their missing pots. Although at the moment the service cannot tell individuals the total value of the pension pots that they have accumulated, it does provide users with the contact details of their provider.
Shopping around for the right option
The world of pensions can seem like difficult terrain to navigate. Consequently, many savers fail to shop around for a pension provider, instead settling for one that does not suit their needs. However, there are plenty of different options available; consumers just need to make a habit of conducting their own research. After all, pension planners are able to transfer their pension pot at any age, so there’s no need to put off conducting research until a later date.
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However, some pension providers will impose fees on clients who transfer their funds, so this is something to keep in mind if you’re thinking of changing providers. Savers should always ensure that you read the small print to see if this is the case or seek independent financial advice if they are unsure.
Keep an ear to the ground
Ultimately, planning for retirement can be complex - particularly in the current climate, where economic turmoil and changing markets are complicating matters even further. With further changes expected to pension policies, tax relief, the triple lock system, and even the potential for negative interest rates, it might seem more difficult than ever to get a handle on retirement finances.
So, it will be beneficial for savers to make a conscious effort to keep up with the latest pension news, and potential changes to pension policies in the new year. In this way, savers are less likely to be in for a shock if any changes are made, and will be able to adjust their retirement strategy accordingly, which should make for a more financially secure retirement. As policies can often be quite complex, savers shouldn’t be afraid to ask for a helping hand if they need some assistance cutting through the jargon.
While 2021 hasn’t been smooth sailing thus far, this doesn’t have to be the case for people’s pensions. After all, there is no time like the present for savers to strengthen their pension pots, and achieve some peace of mind amidst all the chaos.
The coronavirus outbreak has waylaid the best-made plans for the finances of many people, so successfully managing your money through 2020 is now looking to be much trickier than it was before. However, many of the same principles still apply.
Whether it's saving for a rainy day or creating a budget to help you take control of where your money is going, managing your finances will help you stay on top of your bills and create a financial cushion for your future. You can start taking steps to become more financially literate at any time, so this guide will provide you with some tips on how to manage your money effectively in 2020.
Learn how to budget
Whether you choose to write out your budget with a pen and paper or you prefer to go digital and use a spreadsheet or an app, having a budget in place each month is vital to managing your money efficiently. Budgeting is a great way of seeing clearly what you have coming in and going out, so you can see if you’re overspending in a certain area and redirect that money to savings or debt payments.
Pay off your debts
Many people have additional payments to make each month in the form of loans or cards, so you should make 2020 the year that you tackle your debts. It makes sense to pay off the debts which charge the highest rate of interest first, and then pay off the rest afterwards. Some examples of debts you should look to pay off include credit cards, store cards which typically have a very high rate of interest, and personal loans.
It makes sense to pay off the debts which charge the highest rate of interest first, and then pay off the rest afterwards.
A good tip if you have a few debts is to list out all of the loans or cards you have, along with the minimum payments you need to make as per the terms of your agreement, and the interest rate. You can then categorise these from highest to lowest, so you have a clear view of what needs to be paid.
Monitor your credit rating
If you haven’t been checking your credit score on a regular basis, this is the year to start that habit. You can use online tools to get a free credit report that will show you any errors or potential fraud that you may be victim too, as well as give you a good overview of your finances. It’s important to have a good credit rating for larger future purchases such as a mortgage on a property, so it pays to check in every so often and see how you’re performing.
Consider your retirement
So many of us push the idea of saving for retirement to the bottom of our priority list because if feels like such a distant problem. But you can never start saving too early and having a plan in place from an early age will provide you with greater security when the time comes to leave your career.
Pension specialists Reeves Financial point out that "no matter how old you are it is never too late to think about financially planning for your retirement and paying into a pension scheme. It is actually a tax-efficient way of saving money”. So, if you’re currently without a pension plan, now is the time to do your research and set one up so you can begin preparing for the future.
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Set up a savings goal
Some people can find it difficult to get motivated by savings, and it’s understandable – there are often things we want or need to spend our money on more immediately. But it’s often easier if you set a goal so you know what you’re working towards. The first step with any savings plan is to have emergency savings in place – money set aside should something happen out of the blue, such as your car breaking down or if your boiler breaks.
Aim to have two to three months’ worth of expenses set aside in an easy-to-access account for these moments. After you have that saved, you can think about longer-term goals you may have, such as taking a holiday, planning for extra money to have on hand when you have a child or for a wedding. You’ll be surprised how quickly your money piles up, even if you just save £50 a month towards your goals.
Final thoughts
It can be all too easy to bury your head in the sand when it comes to money, particularly if you’re worried about your finances. But having control over your money and how you manage it is the best solution to help you tackle your worries head-on and plan for the future. With these tips, you’ll be in a great position by the end of the year to feel more financially secure and able to start building your nest egg.
Andrew Megson, Executive Chairman of My Pension Expert, discusses how one can best safeguard their pension in a time of crisis.
Pension panic: it is a common occurrence as people approach retirement. However, the onset of the coronavirus pandemic has created a new surge of it rippling throughout Britain.
As of mid-June, more than one in four UK workers had been furloughed, while over 2.6 million self-employed people had applied for financial support from the Government. Worse still, unemployment is set to reach 3.5 million by the end of 2020, according to British business executives.
These startling statistics illustrate just how many people’s livelihoods have been affected by the pandemic. The crisis has brought about financial hardship for millions, which in turn has resulted in a significant increase in consumer demand for financial advice, credit and support.
For many people, their pension pot has taken on added importance. Whether seeking access to these funds in the short-term or re-evaluating their long-term strategy, pensions have been put under the spotlight.
What is pension panic?
You might have seen or heard the term pension panic over recent weeks, but what does it mean?
Well, firstly, it is important to note that pension panic is not a new phenomenon brought about by COVID-19. It essentially refers to people who get closer to retirement age and realise – or feel – that they are not financially prepared. They worry if they have enough money to retire comfortably, if their pension pot is “working hard enough” for them, and how (and when) can they access their cash.
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Yet there can be no denying that these important questions have become more prominent as a result of the pandemic – sudden changes in people’s financial circumstances has understandably resulted in a palpable sense of pension panic among an increasing number of consumers. This in turn can lead to potentially rash, ill-advised decisions.
Watching out for pension scammers
Sadly, pension scammers have also been seeking to capitalise on this panic.
Most consumers think they are savvy enough to spot a scam; however, if they are swept up in a pension panic, it can be easy to overlook the red flags. Indeed, research carried out by Action Fraud revealed that there were more than 2,100 case of fraud in the first five months of 2020, with losses resulting from fraudulent activity amounting to £5.14 million.
Pension scammers will come in many shapes and sizes. Some claim to offer “free pension reviews”, always concluding that victims’ pension pots could offer higher returns if placed in unusual investments such as biofuels, forestry or storage units. Others promise consumers an instant injection of cash by falsely telling them they can access their funds before the age of 55 (early pension withdrawal could result in a tax bill of 55%). There remain many, too, who simply try their luck by illegally cold-calling potential victims in a bid to get their hands on people’s hard-earned savings.
Pension savers must remember that if they have any suspicions about the legitimacy of a website or business then they can search the company on the Financial Conduct Authority’s (FCA) Financial Services Register. If they are not on the register, then it is likely a scam.
Combatting pension panic
So, putting scammers to one side, how can one avoid being overcome by pension panic and making ill-fated financial decisions? In short, people must seek advice. Independent, considered, tailored advice from a trained individual or a reputable company.
The FCA strongly recommends seeking financial advice if an individual wants to cash-in a pension worth more than £30,000. But this does not mean those wanting to cash-in a smaller sum should overlook advice.
Why would people be reluctant to seek advice? Some consumers might think advice is unnecessary – that they can devise their own pension strategy without consulting anyone else. Others will simply have been enrolled on their employer’s pension scheme and given it little further thought. And a sizeable proportion of consumers rule out pension advice because they believe it would be too expensive.
The FCA strongly recommends seeking financial advice if an individual wants to cash-in a pension worth more than £30,000.
This is untrue. In fact, this is a dangerous mindset that must be avoided. Pension advice is necessary for all, and it does not come with a prohibitively large price tag. The question really is whether you can afford not to get pension advice.
Everyone needs pension advice
It may seem like an obvious point, but there is no one-size-fits-all model for retirement finance. While some consumers may know the basics, they might not understand how to maximise their pension pots to achieve a more comfortable retirement.
People may assume the most logical option for them is to leave their pension pot as long as possible and watch its value increase over the years. However, this might not be the best route for them and could cause them to lose out financially.
There is a plethora of options available. Annuities, for example, are a retirement income product that is bought with a pension pot; they could offer retirees peace of mind by providing fixed monthly income for the rest of their lives (or for a specified period agreed with the annuities lender). Alternatively, flexible drawdowns could provide over-55s with the freedom to choose an income to withdraw from their pension which suits their exact circumstances.
The right option always comes downs to individual circumstances. And this further underlines the benefit of financial advisors who review all the possible options and explain them to consumers in simple, jargon-free terms. Only then can a well-informed decision be made.
Knowledge is power, or so the old cliché goes. This rings true in the world of pensions – panic often stems from a lack of knowledge about your pension and the options available. Speaking with experts and gaining their advice gives consumers knowledge and, in turn, power. This will help fight off pension panic and ultimately ensure the best possible outcome for one’s retirement.
