Turned 60 and worried about your pension?

The good news is that you still have time to sort things out Here is a check list of what you need to do to ensure you get as much income in retirement as you can.

Check your retirement age

When you first started work you probably expected to retire at 60. Now you are unlikely to get your state pension until you turn 66. Why not use the government’s online facility at www.gov.uk/state-pension-age to find when you will be entitled to receive the state pension?

Will you get the full state pension?

Have you had a career break, for instance to raise a family or maybe you were out of work for a while, or worked abroad? Were you one of the many people who opted out of SERPs in the 1980s and 1990s? If so, you should check whether or not you will get the full state pension. The pension is based on your National Insurance contributions and in some cases it is possible to top these up. Go to the check your state pension website at www.gov.uk/check-state-pension to find out how much you will get.

Do you have pensions from previous employers?

Have you worked for more than one employer? If you have, then you are likely to be a member of more than one pension scheme. Dig out the paperwork and contact the pension scheme to find out how much you are likely to be entitled to and when. It is worthwhile also finding out what the transfer value is.

Do all your pensions give you a guaranteed amount?

Public sector pensions generally give you a guaranteed income for the rest of your life when you retire. These are known as defined benefits pensions. Private sector pensions generally provide you with a pot of money and it is up to you how you use it to generate the income you need for the rest of your life. These are known as defined contribution pensions as they are based on the amount that has accumulated in the pot over time.

Will your pension income be enough?

If you have had a career break for whatever reason, or if you have not made additional contributions into your pension, you may find that the total amount of income you will receive from your various pensions is not enough for you to live the life you envisage once you stop work.

How to get more income

Well, you could consider working longer, and delay taking your pensions. Maybe you have savings you can use to generate more income. What about your home? If you have a spare room you could rent that out, but that may not be the kind of retirement you envisaged. Maybe you could downsize, but moving home is expensive and you need to be sure that it would give you the extra cash you need. If you own your home you may be eligible for what is known as a lifetime mortgage.

Consult a professional financial adviser

If all this sounds a bit complicated, then talk to a professional financial adviser. 

The value of your investments, and the income you receive from them, can go down as well as up. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

 

How to make your savings work harder

Whatever you are saving for – the deposit on your first home, your wedding or to help your children through university – it is important to put your money in a plan that gives it the potential to grow.

It’s all very well putting money aside, but where precisely are you going to put it? A standard deposit account may seem like the safe option, but with interest rates at all-time lows, your money will grow painfully slowly and could end up being worth less in real terms once you take inflation into account. Here we explain how you can make your savings work harder for you.

The whole point of saving money is to make it work hard, so that even a small amount each month has the chance to grow into a sizeable amount over time, so you can make your dream come true.

With money on standard cash accounts still lower than inflation, unless you take action your savings will end up shrinking in real terms. Assuming this trend continues, you will be able to buy less with your savings in, say, seven years’ time than you can now.

Giving your savings the potential to grow

Putting your savings into stock market investments is more likely to be a sensible choice if you are saving for the longer term, for instance five or more years, and gives you the potential for capital growth and income or interest. However, unless you have plenty of spare time and the detailed knowledge required to research appropriate investments, you should ask a professional financial adviser to recommend suitable funds. 

Reducing risk

Stock market investments are inherently risky – the value of stocks, shares and funds can go down as well as up – but there are ways of reducing risk.

One is by not buying individual stocks, shares, bonds or other types of investments directly. Most people put their money into one or more investment funds that then invest the pool of investors’ money across a broad range of types of investments. This ensures that you do not have all your eggs in one basket.

Another is by choosing investment funds that are managed in a way that suits your attitude to risk. Some people are more willing or can afford to take more risk than others. Your financial adviser will help you work out your risk profile and can then recommend investment funds that match it. Your risk profile may change with your age and circumstances. Your financial adviser will review it with you regularly.

How much might you have missed out on?

if you had stashed away £50,000 in a savings account earning the UK base rate in 2009 today you would have £52,510. With inflation higher than the base rate for most of that time, you would have become poorer in real terms. 

If instead you had put your £50,000 in UK equities, you would now have something in the region of £133,553.

Give your savings the potential to grow

You may decide that the market looks too risky to invest. But in a world where inflation is higher than savings rates, taking no risk is risky too. The best thing to do is to consult a professional financial adviser who can recommend funds that match your attitude to risk while giving your money the potential to work harder for you.

The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you put in. 

Source: FE Analytics 27 August 2019.

Time to give your personal finances a mid-life MOT?

As you get older your priorities change, and the way your personal finances are organised needs to change too. It’s time to give your financial planning an MOT.

Do you know how many pensions you have? And how much they are worth? Maybe you would like to help your children buy their first home but are not sure of the best way of doing this. And, with retirement just over the horizon, you may be worried that you won’t have enough income when you retire. 

Giving your personal finances a thorough overhaul can help you resolve these and other concerns and the best way of doing this is to consult a professional financial adviser. 

How we helped Mr Johnson get back on track

Mr Johnson*, an engineer in his early 50s, is divorced with two children. Last May he decided to book an appointment with one of our advisers. “Although I enjoy my job and want to continue working for as long as I can, I wanted to know that when I do eventually retire I will be OK financially. I wasn’t sure when I would get my state pension and had pensions from previous employers I had neglected, in addition to my pension from the utility company where I now work. Plus, I had a few random savings accounts that I had opened years ago and which didn’t seem to have increased in value.”

Jane, his financial adviser, asked Mr Johnson about his income and expenditure now, whether he was likely to inherit any money, plans for his retirement and other things, including whether he would like to help his children financially. 

“Mr Johnson is fortunate in that he will have paid off his mortgage in five years’ time. However, he has agreed to help his son with the cost of going through medical school and his outgoings will increase. I started by tracing Mr Johnson’s previous pensions. It turned out that he had three small pension pots from employers early on in his career, in addition to that of his current employer. It made sense to put them into a single fund, with the money invested for long-term growth in line with Mr Johnson’s risk profile.

Using savings to boost income

“His savings accounts were cash ISAs earning next-to-no interest, despite it being paid tax-free. We decided to keep three months’ worth of expenditure in the account paying the most interest as emergency money. We transferred the balance to a fund that generates regular tax-free income, in order to help pay for his son’s training. He can stop taking the income if he no longer needs it, for instance when he finishes paying off his mortgage, or if he inherits money from his parents.”

Ways of paying for long-term care for Mr Johnson’s parents

“I also asked Mr Johnson whether he would like me to review his parents’ finances and explain how they may be able to pay for long-term care (if it is needed) without having to sell their home or deplete their modest savings. He hadn’t realised that this might be possible. He mentioned this to his brother and parents who agreed that it would be a good idea at least to understand the options.”

I now know I can manage

Mr Johnson is happy that his finances are now arranged in a way that suits him. “Jane was fantastic. She listened and understood my concerns. I now know I can manage to help my son through his long training. And looking further ahead, my pensions should give me enough to live on without having to worry. Anything I end up getting from my parents will be a bonus.”

* We have changed real names to preserve anonymity. All financial details reflect the circumstances of the client.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Life-changing events and your finances

We know it’s a cliché but life is a journey and your circumstances and priorities change. Major changes tend to have financial consequences. Here we highlight some of them.

You will probably go through a number of life-changing events over the years, hopefully mostly for the better, although few of us get through without some unhappy ones. We inevitably get caught up in the emotions and practical issues these events throw at us. But major changes tend to have financial consequences. So when something significant happens, make sure you check your finances and make any adjustments required.

Getting married or living together

The good news is that living together is generally cheaper than living alone. Things to review at this exciting time include your Will, pensions and investments, together with life and critical illness insurance. Review your joint income and expenditure and agree a plan. You may find that jointly you have more spare cash. Time to start planning to make your dreams happen! 

Bringing up children

Your income may fall and your outgoings will certainly increase – for around 18 years or so. You will want to provide your family with financial security so it is important to review your Will, make sure you have enough life assurance to protect the family’s finances, particularly important if you are taking a career break and losing valuable benefits) and maybe start saving for school or university fees.

Death of a partner or parent

This is a difficult time, when it is important to consider the financial impact of the death on remaining family members, ensuring they are financially secure and that money is invested appropriately and tax-efficiently.

Promotion or changing jobs

If your salary has increased, do you now have surplus income? If so what would you like to use it for? Saving towards a deposit on your first home (or helping your children on to the property ladder)? Paying for your (or your children’s) wedding? Boosting your pension provision? Making overpayments in your mortgage? The amount going into your pension each month will also have increased. Could you be in danger of exceeding your Lifetime Allowance, the maximum amount that you can hold in your pension without having to pay additional tax when you access it?

If you have changed employer, what are the implications for your pension scheme and other employee benefits? Does your new employer offer the same (or better) benefits as your previous one? If not, consider whether you should replace them.

Divorce or separation

Making sensible financial decisions during this highly emotional time can help you get back on a sound financial footing and protect the interests of any children. Should you sell the family home or buy out your partner and take out a new mortgage? Can you split or share your pensions or do you need to set up a new pension? What about any joint investments? Do you need to protect your new lifestyle and that of your children?

Talk to a professional financial adviser

When something in your life changes financial issues are often the last thing on your mind. Yet consulting a professional financial adviser can help ensure that you make the most of your money, whatever the change to your circumstances.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. Tax advice which contains no investment element is not regulated by the Financial Conduct Authority.

Why do I need income protection cover?

Even if you have savings, you might find it a strain financially if you were absent from work for an extended period due to illness or injury. While a short amount of time may be doable for some, mortgage costs, household bills and general everyday living expenses will quickly mount up if you’re not receiving a salary, depleting those hard-earned savings. In these situations, having income protection cover is extremely valuable, taking away money stress so you can concentrate on getting back on your feet.

What does income protection insurance do?

Whether you’re the family’s main earner, self-employed, or receive limited sick pay from your employer, you can benefit from income protection cover. If you are unable to work due to injury or illness, and sometimes forced unemployment, you may be able to claim under your income protection policy to keep yourself going. 

What kinds of policies are there?

There are many reasons why you might be unable to work, and likewise a wide range of policies to suit all eventualities. With a guaranteed policy, your premium remains the same regardless of the length of the policy term. It would only change if you decided to increase your cover. While this type of policy might initially be more expensive, it can be more cost-effective long-term. 

Another popular type of policy is a reviewable policy, where the premium will change in line with your age and medical advances. This kind of policy may be cheaper than a guaranteed one at the outset, but here the premium has the potential to increase over time.

What payout can I expect?

The amount of insurance you require depends on your personal circumstances and the level of cover will vary for every individual. It’s important to be realistic about the level of cover you need, only insure for a sum that is likely to pay out. Usually, you can insure for about two-thirds of the earnings you would have received after tax from your job, as it will not include any state benefits you can claim. Income from these policies is typically tax-free and you would have to provide evidence of your pre-claim level of earnings.  

When you begin the policy, you select the deferred period; this will depend on your circumstances. You would normally have to wait at least four weeks before payouts start, but you can choose to defer payments for longer (for example, if you receive sick pay from your employer). Some providers offer immediate cover. The policy will then continue to pay out either until you return to work, or the policy expires. 

Policies can also be short or long-term. Long-term policies have more expensive premiums, as they are designed to pay out potentially for the remainder of your working lifetime if you become so ill you can never return to work. While short-term income protection will only provide cover for a limited period (normally between six and 12 months). 

Why should I seek financial advice?

With so many options available, it might be difficult to choose which type of policy is most appropriate for you on your own. This is where an adviser is able to help. To find the level of cover you need, you’ll also need to consider what other monthly financial commitments you have, such as mortgage payments or credit card debt.

Nobody wants to put their family through financial hardship should the worst happen, which is why it is critical to get the right cover.

If you’d like to discuss the most appropriate type and level of income cover for you, just get in touch and we’ll guide you through finding the option most suited to your financial circumstances.

Is equity release a conventional way to fund retirement?

Is equity release a conventional way to fund retirement?

Just a few years ago the answer to this question would probably have been no, but with equity release products now some of the most highly regulated in the UK and with the country’s ageing population looking for ways to raise money in later life it is not surprising that the industry is growing in terms of the number of products.

The Autumn 2018 Market Report from the Equity Release Council (ERC), highlighted that the equity release sector has doubled in size since the first half of 2016 and that property is now recognised by some as being vital for their retirement. As the value of property has increased in parts of the country, so retirement ages have also risen creating a need to release cash from the property in order to fund anything from home improvements, debts, supplement retirement income, or to support children and grandchildren as they buy homes of their own.

How can I release money from my home?

As long as you are over 55 and own your home, there are two ways you can release money without having to sell your property or make monthly repayments. The first is a lifetime mortgage which allows you to borrow money against the value of your home, which is repayable with interest when you die or move into long term care. The second is known as a home reversion plan and it gives you access to some or all of the value of your home, allowing you to live in the property rent-free for the rest of your life.

If you are at this stage in life and find yourself property-rich but cash-poor, it may make sense to explore these options. It is a big decision to make and not one you should make alone. Talking to one of our professional financial advisers will give you the assurance that you are receiving all relevant information and industry safeguards. Your adviser will thoroughly review your financial circumstances and be able to advise whether equity release is suitable for you. If it is, they will discuss the most appropriate way of releasing your equity and address any concerns you may have such as Inheritance Tax implications. 

Important Information: Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. Equity release may not be right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate. Check that this mortgage will meet your needs if you want to move or sell your home or want your family to inherit it. If you are in any doubt, seek specialist advice.

Lighthouse is a member of the ERC and has a team of specially qualified Equity Release advisers.

Find out more here Equity-Release or call 0800 085 8590 to book a complimentary initial consultation.

Auto Enrolment increase in contributions

Don’t automatically stop saving

Since 2012 an additional 10 million people in the UK have started saving into a pension via their automatic enrolment workplace pension scheme. This is thanks to the Government initiative to make it compulsory for employers to contribute into a pension plan for all their employees earning above the threshold figure of £6,032. The minimum contributions of employers and employees will rise on 6 April 2019. Both sound like good news and they are but they shouldn’t stop you thinking about your retirement and working out if you need to save more.

The facts

The minimum contribution to a workplace pension has gone up from 5% to 8% of your salary. You may be lucky and find that your employer has decided to pay the whole 8%. Legally, however, they only need pay 3%, leaving you to pay the outstanding 5%. This is calculated by combining the total of your regular wages, commission, overtime, sick pay and maternity/paternity pay. It is taken from your pay before it is taxed so you effectively get full tax relief on the sum.

You are automatically enrolled if you are at least 22 and under the State Pension age and are working in the UK under a full-time, part-time, permanent or temporary employment contract. If, however, you are self-employed you will not have access to automatic enrolment into a pension scheme and while the Government is considering plans to help this group save for retirement, there is nothing formal in place yet. If you are self-employed it is important to take full control of your financial planning.

But will it be enough?

Even if you have a workplace or an independently sourced pension don’t assume it will be sufficient to see you through retirement. We have a longer life expectancy and the State Pension age has increased with no guarantee that it won’t again. And you shouldn’t presume that your state pension will be sufficient to live on.

The age at which you start to contribute to a plan makes a difference, if you start your saving early in your working life the number of years plus the accumulated interest will provide you with a healthier sum than if you are only auto enrolled towards the end of your career.

It literally does pay to take an active interest in how your pension is performing and by seeking professional financial advice.

Act now so as not to leave an inheritance tax bill

Helping relatives

If you are likely to help relatives with their finances as they get older and less able to cope, you should arrange to have a Lasting Power of Attorney. This will allow you to take decisions and act on their behalf. It is more straightforward if you have the authorisation of the person on whose behalf you will be acting, so it makes sense to arrange a Power of Attorney before it is actually needed.

You can’t take it with you!

If you are in the lucky position of having more money than you need for the rest of your life, start giving it away to whoever you would like to benefit from it. By doing this in a carefully planned way, with the help of a professional financial adviser, you may be able to eliminate any inheritance tax payable when you eventually pass away. 

Keep your money and reduce inheritance tax!

Putting some of your savings into investments that qualify for Business Property Relief, such as shares listed on the Alternative Investment Market (AIM), can help reduce inheritance tax as, once you have held them for two years, they are exempt from the tax. AIM shares can be held in ISAs, with the result that you can reduce the value of your estate and continue to benefit from income and growth tax-free without giving them away. 

You could consider using a specialist discretionary fund manager or invest via one of the specialist funds that are now available. However, investments in unquoted companies and those quoted on AIM are considered to be high risk and it may be difficult to sell them quickly. It is important that you understand the risks that you are taking when making such investments and you should take professional financial advice before acting.

The value of your investments can go down as well as up, so you could get back less than you invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice which contains no investment element is not regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate Will writing.

How to save for a future free from money worries

To be able to enjoy a comfortable retirement later you need to start saving now. Here are some tips for a future free from money worries.

Money to spare? Top up your pension

Making contributions to your pension fund is the most tax-efficient way of saving, as contributions benefit from income tax relief at your highest rate.

Rather than guess, you should work out what you have already accumulated, how much income this might give you when you retire and how much income you are likely to need to be financially independent. Then you will be able to work out whether you need to save more. It is best to ask a financial adviser to help you work out these figures, as calculating them is complex and you need to make sure they are as accurate as possible.

If you do need to save more, in most cases you should consider making additional contributions into your employers’ scheme or a personal pension. You pay contributions out of taxed income, but the government tops up your contributions by the amount of tax you paid on them. For instance, if you are a basic rate taxpayer, for every £80 you pay in the government pays in an additional £20.

Check your pension at least once a year. If you have personal pensions or are a member of schemes that are based on defined contributions (ie which are not based on defined benefits such as final or career average salary), perhaps from previous jobs, you should make sure that the funds are invested in a way that matches your objectives (see making your money work hard section). To do this you should consult a professional financial adviser.

Still got money to spare? 

If you still have even a few pounds spare each month, consider increasing your mortgage repayments, assuming that your mortgage provider allows you to do this. Over payments go towards paying off the amount you have borrowed, gradually reducing the amount you owe. 

Lazy savings?

Do you have money, over and above “rainy day” money equivalent to roughly three months’ expenditure, sitting in cash saving accounts? If so and you are saving for the medium-to-longer term, consider moving the money to stock market-based investment funds. This will give them the potential to work harder for you.

Cash you have in savings accounts is earning very little in interest and will therefore have been decreasing in value in real terms since 2008. To buy something now that cost £100 in 2008 you would need £130.90 (Source http://www.in2013dollars.com/2008-GBP-in-2018). So unless your savings have grown by 30.90% in the last ten years you are worse off now than you were ten years ago.

In contrast, during the 10 years ended November of 2018, the FTSE 100 returned 63% (Source https://www.forecast-chart.com/historical-ftse-100.html). Stock market investments are inherently risky – the value of stocks, shares and funds can go down as well as up – but there are ways of reducing risk. One is by not buying individual stocks, shares, bonds or other types of investments directly. Most people put their money into one or more investment funds that then invest the pool of investors’ money across a broad range of types of investments. This ensures that you do not have all your eggs in one basket.

Past performance is no guarantee of future returns.

Another is by choosing investment funds that are managed in a way that suits your attitude to risk. Some people are more willing or can afford to take more risk than others. Your financial adviser will help you work out your risk profile and can then recommend investment funds that match it. Your risk profile may change with your age and circumstances. 

Don’t miss out

Do you have premium bonds? If so, does National Savings and Investments have your correct address? If they do, they will notify you if one of your numbers comes up. If they don’t, contact them and find out whether you are among the 1.5 million or so unclaimed prize-winners (Source: NS&I, August 2018 https://www.nsandi-adviser.com/august-2018-premium-bonds-prizes)

The value of your investments can go down as well as up, so you could get back less than you invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice which contains no investment element is not regulated by the Financial Conduct Authority. 

Family matters

An addition to the family?

When you are having a baby, financial protection is probably the last thing on your mind. But you should check whether you need to increase your and your partner’s life insurance and critical illness cover.

Educate the children

Teaching your children about budgeting, saving and managing money from an early age will help them make good financial choices when they start earning money themselves.

Make saving a family affair – 1

Encourage the whole family – parents and children, grandparents and grandchildren, brothers and sisters, nieces and nephews – to open ISAs and pay in as much as possible. Any growth and income they take is tax-free.

Make saving a family affair – 2

If you have money to spare, consider paying in to your children’s or grandchildren’s pensions, as money in the fund can grow tax-free. There are restrictions on the total that can be paid in each year and you need to make sure you are paying into a suitable pension fund. You should therefore take professional financial advice, in conjunction with your relative if they are over 18, before doing anything.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice which contains no investment element is not regulated by the Financial Conduct Authority.