Archive for the ‘Personal Pensions’ Category

What’s My Pension Worth?

Friday, June 12th, 2015

FB - PensionsWorthIt’s hard to argue about the importance of saving for old age.  Those still of working age need to look at how they are going to finance their later years.

Those already retired need to think about getting the most out of their available finances.  The exact rules around pensions and savings can be changed in line with government policy at any given time.  Indeed the pension system has just been through an overhaul and with an election looming, politicians of all colours are setting out their plans for the future of pensions and the pensions of the future.  In reality, however, these plans only have any meaning to people who are focused on saving for retirement.  Let’s therefore look at some key questions on the topic.

What Is A Pension Pot?

Quite simply a pension pot is a common term used to describe savings which are specifically to finance retirement.  People contributing to a pension pot may get assistance from the government (in the form of tax relief) or from an employer (in the form of contributions).  Pension contributions are usually locked away until you reach retirement age.

How Do I Calculate My Pension?

There are plenty of online calculators to help with this.  It’s strongly recommended to keep track of how your pension is doing so that you know where you stand.  If you do decide you need to take action, sooner is usually better than later.

I Don’t Like What I’m Seeing, How Can I Build A Healthier Pension Pot?

You have three options.  You can save more money, you can manage your savings more effectively or you can do both.  It can help to look at this question in the light of your overall financial situation.  For example if you are carrying high-interest debt, such as credit-card debt, then it may well be in your best interests to focus any spare cash you have on paying this down.

Once you have cleared your debt, you can then divert the funds to building your pension.  If you do have spare cash and are in employment, then it may be useful to look at making extra contributions to your workplace pension.  This can be particularly helpful if your employer will top up any contributions you make.  If you’re unsure about locking cash away until you retire, then it may be worth looking at ISAs as an alternative.  Although contributions to ISAs are made out of post-tax income, generally speaking the income they generate is tax-free and the money in them remains accessible if you need it.

What Do I Need To Know About Getting More From My Pension Pot?

For many years getting more from your pension pot generally meant getting the best deal on an annuity.  Now there are vastly more options for those with pension pots.  With this in mind, it can be very helpful to get some professional advice before taking any significant decisions on how best to use your pension pot.

It is also advisable to keep up to date with any changes which may affect pensions.  For example at the current time, the Conservatives have a proposal to allow holders of annuities to sell them on.  If enacted this could have massive implications for existing pensioners.

It’s also worth remembering that, generally speaking, pensioners have access to the same savings and investment products as those of working age.  For example they get exactly the same ISA allowance as working adults. There are even some savings products tailored specifically to their needs (e.g. pensioner bonds). These can all help pensioners to make the most of their finances.

Fancy Retiring to an Exotic Marigold Hotel?

Friday, May 8th, 2015

Fancy Retiring to an Exotic Marigold Hotel?In the UK today 40 percent of people consistently put away too little money each month to fund the cost of their retirements. Too many people simply spend for today being unaware that tomorrow waits for nobody.

Throughout the working lives for many of us the day on which we will need to draw on our pensions seems consistently far away.

Even for those lucky enough to be enjoying their youth in a carefree way, the fact remains that by failing to invest in the present, the time they enjoy is being waste.

The government has announced in the last twelve months a huge series of changes and shake-ups in the pension market and savers will have more freedom than ever before to decide how they access their pension savings from the beginning of the new tax year.

The question of how much to put away each month into a pension is a complex one and in this blog, we will address what you need to consider before you arrive at a fixed sum.

The first thing to consider is what type of lifestyle you hope to enjoy once you’ve retired and at what age you see yourself retiring.

Many people leave their working lives before reaching the once statutory 65, and age discrimination legislation now prevents mandatory retirement at any age.

It is possible, therefore, to retire earlier or later, but you will need the finances to sustain you.

The rather bleak question of how long you will live in your retirement also needs to be addressed.

New pension rules ending the compulsory purchase of annuities means that when you do retire, a portion of the pension pot could be used to pay off debts such as mortgages.

This will leave savers with less of a recurring monthly income but also lower overheads and more security.

The chances are that if you are reading this, you may already have a pension plan. If you are a UK tax payer, you may also have access to a state pension through paying national insurance.

This means that you might be in a better position than you thought, so a first step should be an audit of what savings and investments you have.

The government’s Pensions Tracing Service, can help you find any obscure pots of money that you are entitled to. Alternatively if you would like some advice or help in devising a pensions strategy for the future or finding a pension fund that suits you, why not speak to a professional adviser.


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How Much Should You Take Out Of Your Pension Pot?

Tuesday, April 14th, 2015

How Much Should You Take Out Of Your Pension Pot?No one is as wise, prudent or capable of self restraint as they think they are. When we think of a large sum of money, £100,000 say, we tend to think in terms of what it might buy: An incredible car, several years travelling round the world, a large new extension transforming our house into a dream home, or continued financial security in our old age?

The latter is, of course, less exciting, less glamorous, and less fun, but far more important, which is why, after 6th April this year, savers who become eligible to draw down their pensions need to exercise a degree of caution.

Last March the Chancellor of the Exchequer, George Osborne, announced that annuities, the insurance policy taken out against the value of your pension, guaranteeing a monthly income for life, would cease to be compulsory.

This means that pensioners can now access as much or as little of their nest egg as they like in a lump sum, and then commit the rest to an annuity or a different kind of policy thereafter.

The question, however, is how much can one withdraw from a pension before it ceases to be a viable savings pot?

Twenty years ago, the financial advisor William Bengen calculated what he believed to be an exact figure for the amount an investor could withdraw annually and maintain the same standard of living.

Bengen, who lived and worked in the USA, based his calculations on a portfolio of US stocks and bonds, divided evenly between the two. He assumed that on average, bond returns would be 2.6 percent and the return on shares would be 8.6 percent.

He also assumed that the total length of time that a person would be drawing on a pension for would be thirty years and on this assumption he argued that each year; a total of four percent of the overall pot could be withdrawn without running out of money.

However, all such calculations reflect the era in which they were made and the investment world 20 years later, post 2008 crash is very different.

There are plenty of economists and advisors who now argue that Bengen’s projections are flawed and do not match the current investment realities of our age.

A new study into pension draw down by Michael Finke, Wade Pfau and David Blanchett, published in 2013, titled “The 4 Percent Rule is Not Safe in a Low-Yield World,” state that pension companies cannot rely on Bengen’s rule any longer.

A larger population than ever before is reaching retirement age and the growing wealth of previously poorer countries with high savings rates is attracting more and more capital away from UK and US companies.

These factors combined mean that in 2015 we exist in an economy where yields of investments are much lower than when Bengen first calculated his four percent rule.

Because portfolios on average are not performing as well as they once did, one cannot rely on the same figures and arguably one should try to draw down less, or perhaps not draw down at all.

This might sound like an argument for re-instating annuities, and savers who want those kinds of guarantees can buy annuities if they choose.

Before committing yourself to any course of action with your pension, it is always advisable idea to get some practical advice, in fact most pension companies will insist on this.

The market for pension investments is fluid, complex and difficult to predict, so it is often worth accessing some impartial financial expertise before making decisions about your financial wellbeing for the rest of your retirement.


How To Benefit From The New Pension Rules

Wednesday, April 8th, 2015

How To Benefit From The New Pension RulesHere’s an unsettling mortal thought: When do you think you are going to die?

It’s a question we generally seek to avoid, though thanks to recent changes in the pension market, it’s a question that’s taken on a new significance.

Decades ago, one retired at sixty five and, on average, drew a decade of pension entitlement before departing for the sweet hereafter.

In 2015, some of these certainties have gone. Not only are many of us taking early retirement, but equally as many are facing a future where they will have to work on for many years.

We have longer life expectancies than ever before and this means longer retirements to plan for.

As of March last year, and coming into effect from 6th April 2015, savers accessing their pensions will no longer be forced to purchase an annuity.

Annuities are insurance products that pension savers bought with the lump sum of their pension, which in turn guarantee them a monthly income for the rest of their lives.

Since this will be made non-compulsory, pensioners have been allowed to spend their lump sum in whatever way they see fit.

This new found freedom has both benefits and drawbacks. Greater flexibility in the way savers draw down their pensions means more choice for millions, but it also means that there is the potential for serious financial problems later on.

Let the saver beware

Pensioners with large sums of money to spend need to be wary of investments that sound too good to be true.

In addition to this, even if they are investing their in thoroughly reputable funds or buying property, it is essential that they work out exactly how far their savings will go.

Thinking of one’s own life expectancy, the amount of returns that the investment will yield, and the standard of living ideally one might like to enjoy are all crucial considerations.

Savers must also consider the potential rise in the cost of living as inflation is guaranteed to erode part of any savings in the long run.

Very few pensioners will make genuinely foolish decisions and blow their life savings on a Ferrari, but there might well be a significant number who seriously miscalculate how much they will need to live on and wind up with major financial problems later on.

Getting advice

Retirement is supposed to be a time in life where the hard work of the previous decades pays off and life can be enjoyed, but without a sound financial basis, this is impossible.

It is for this reason that pensioners who access their annuity free lump sums should seek some professional financial advice as a priority.

Financially planning a retirement is difficult, and for many of us, managing it alone is a complex and demanding process.


Is A Self Invested Pension Right For You?

Thursday, April 2nd, 2015

Is A Self Invested Pension Right For You?In the past year, due to pensions reform,  the UK pensions market has undergone radical change and savers will have more autonomy and more choices now than ever before after 6th April 2015.

Whilst this is undoubtedly a positive development for many, it also means that savers need to be better informed than ever before about the benefits and potential downsides of different types of pension.

The Self Invested Personal Pension (SIPP) gives the saver control over their investment choices and this blog will explore what investors can gain from them.

Traditionally, pensions were policies sold by and managed by large providers.

Pensions would tend to invest in funds managed by the pension company meaning that the policy holder is limited in their investment choices.

A SIPP is quite different. It is a DIY flexible pensions policy that enables the holder to invest in a wide range of choices, with the shares held in a ‘pensions wrapper’. The investments that a SIPP owner can buy have to be approved by HMRC.

Who might benefit from a SIPP policy?

Pension companies are paid for their ability (in theory)  to maximise the return on investments and minimise risk. However, there are individual investors often understand how to profit from investing already.

If you already understand investing, are happy to do your homework and work out what investment opportunities suit your needs then a self invested pension might well be a good opportunity for you.

However, as any seasoned investor knows, the value of investments can go up, but it can also go down.

Stepping out on your own can be liberating but at the end of the day any poor investment decision made by you will see your fund decline in value.

What do I do with my SIPP?

You can put a variety of different types of investments into your SIPP, so choosing a mixture of low, medium and higher risk stocks, shares and bonds (among other investments).

One of the advantages of a SIPP is the government tax relief you will receive when making an investment. If your personal rate of income tax is 20 percent, this is the rate of tax relief that will be applied to your SIPP.

Therefore, if you invest £8,000 in a SIPP, the government will assume that, without the 20 percent tax that would normally be levied on your earnings, you would have had £10,000 to invest. The government will then top your SIPP up by £2,000 to £10,000.

If you are earning a wage you can invest up to 100 percent of your wages (up to £40,000 in the 2014-2015 tax year). If you are unwaged you can contribute up to £3,600 per year and still access tax relief.

What else do I need to look out for?

In order to open one through an investment firm, you will be looking at setting up fees.

You might find that some SIPPs don’t charge an annual fee, but others will charge anything between 0.5 percent and one percent of the total value of your investments per annum.

Therefore on a £100,000 pot you could wind up spending £1,000 a year in fees.

In addition to this, you as an investor are responsible for the cost of your own trades, which might be anywhere between £10-£15 a time.

Before you commit yourself to any investment you should talk through your needs and priorities with a professional financial advisor who is an expert in the field.



When Did You Last Check Your Credit Rating?

Tuesday, March 31st, 2015

When Did You Last Check Your Credit Rating?Whether or not you realize it, Experian, Equifax and Callcredit all have a huge impact on everyday life in the UK. They are the “big 3” credit-rating companies. . Businesses use their services for a whole variety of reasons. For example some companies use them to confirm a person’s identity, particularly if they deal in age-restricted goods such as alcohol. Mobile phone networks also tend to check with credit-reference agencies before they hand out expensive contract smartphones. Some employers check them, particularly if a job involves dealing with money. This means that even if you have no intention of applying for any credit in future (not even a mortgage), it can still be a good idea to keep your credit record looking good.

Credit records are about more than just money

When thinking about brushing up your credit record, your first thoughts may be about how to manage the family finance (better) as this does indeed have an impact on your credit rating. For example late payments or being over limit on credit card will set your score back. At the same time, even those with a perfect financial track record and plenty of savings to draw on, can find themselves with poor credit scores for a number of reasons. Whatever you do, make absolutely sure you are on the electoral role as this is a major point during credit scoring.

Wrong data

Everybody makes mistakes and that holds true of credit-scoring companies. Ideally you should make a point of checking your credit record every year or so, to give yourself the opportunity to have any mistakes corrected before you feel any need or want to apply for credit. You should certainly check your file before making any significant application for credit (e.g. a mortgage).

Mixed messages

You fill in a form to apply for something and put down that you live in flat 6F. You fill in a form to apply for something else and put down that you live in flat F6. Your letters might still get to the right address but the computers at the credit reference agency might not make the connection. Even if you’ve always filled in your details in correctly, data from hand-written forms can be entered incorrectly and even forms submitted online can go wrong occasionally. Again, you can pick up these issues by checking your file.

Lack of closure

It’s fine to keep a credit card for emergencies, but if you only have a card because you’ve never quite got round to closing it, then close it. Very simply, every credit card you have on your file will be considered a card that’s available for you to use (which technically it is). This may impact how much money other lenders are prepared to offer you.

In short…

Having a good credit record is partly about general financial health and partly about making sure that your credit record is correct.

What The General Election Means For Your Retirement Plans

Wednesday, March 18th, 2015

What The General Election Means For Your Retirement PlansGeneral election time often creates both excitement and nervousness and for much the same reason – the prospect of change. With the battle heating up, the economy in general and pension reforms in particular look like becoming key battlegrounds in the approach to May 7th. With that in mind, let’s take a look at what the three main parties have indicated is in store in terms of retirement planning in general and pensions in particular.

The Liberal Democrats

At the moment, the Liberal Democrats’ proposals are still in “pre-manifesto”-stage, i.e. they are still to be made final. Current indications are that they plan to adopt a tax-and-spending economic strategy. Hence pension savers can expect there to be new levies on their pension pots. There will also be a reduction in the amount people can save tax-free in these pension pots. At current time, the Liberal Democrats are talking about capping them at £1M, which would be a reduction of 20% on the current figure.

The Labour Party

The Labour Party has also yet to release its manifesto; however it has shown itself open to reducing tax relief on pension contributions made by higher earners. Specifically it has mentioned targeting those earning over £150K pa and slashing the relief on pension contributions to 20%. Labour believes that this would raise over £1bn, which they say they would then spend on job creation. This is in addition to reintroducing the 50p rate of income tax to incomes of over £150K pa Labour have indicated that they are in favour of a mansion tax, which they say they would use to fund the NHS. As a final retirement-related point, Labour have also proposed abolishing the Winter Fuel Payment for the most affluent pensioners.

The Conservative Party

Again, the Conservatives have yet to release their manifesto. They have, however, stated that they are committed to “dignity and security” in later years. They also have a track record in government, which could give some clues to their outlook. First of all it was the Conservatives who introduced the “Triple Lock” pension policy, i.e. the guarantee that the state pension would rise in line with inflation, wages or 2.5%, whichever is the highest. While Labour and the Liberal Democrats are both in favour of this “in principle”, neither has, as yet, made a commitment to keeping the Triple Lock, whereas the Conservatives have guaranteed to keep it until at least the 2020 election.

Recently the Conservatives have removed the obligation to use a pension fund to buy an annuity, with effect from 6th April 2015. This means that pensioners can choose between the freedom of keeping control of their pension pot versus the security of an annuity. This has been the subject of some controversy; in that the elderly will splurge their earnings (possibly for the best of reasons) and thereby make themselves dependent upon state support in their latter years, particularly if they need long-term care. Given that the logic behind offering tax relief on pension contributions was essentially to ensure that people were able to save enough to have an income in retirement, it is an open question as to how Labour or the Liberal Democrats would respond to this if they were to form a government. They could choose to let sleeping dogs lie, they could choose to bring back the obligation to buy an annuity (albeit possibly at a later age) or they could use this change to justify changes to tax relief on pension contributions.

The Conservatives have announced other changes, which essentially make it easier to transfer pension pots between generations upon the death of the saver. Again, it is unclear whether or not Labour or the Liberal Democrats would continue to support this.

Getting The Most From The Pension Reforms

Wednesday, February 25th, 2015

Getting The Most From The Pension ReformsThe private pensions market has undergone a period of rapid and intensive change in the past year. In the next two years state pensions will also be transformed and inevitably there will be those who benefit from the changes and those who don’t.

This blog is written to give you the best chance of benefiting from the new pensions landscape; normally the savers who are informed, pro active, and realistic about their circumstances and entitlements retire wealthier.


Last year the Chancellor of the Exchequer made annuities non compulsory on”defined contributions” pensions, meaning that when a saver wants to access their pension they can decide exactly how to spend it.

This gives some the flexibility to use a lump sum from their pension to pay off mortgages or other debt, contribute towards grandchildren’s education fees or buy a new property.

The FCA Review

The FCA’s review of the market has exposed some annuity providers discouraging potential customers from shopping around and charging penalties to existing customers who did.

The FCA has not published the names of the worst offenders yet and is waiting on further information provided by companies about their practices before it decides to take action.

What does this mean for you?

If you are considering buying an annuity you need to make sure you compare the fees and charges of each annuity scheme.

State Pensions

Not only have “defined contributions” pensions undergone significant changes in the last year, but plans for state pensions have also changed.

The statutory pension in 2016 will increase to a uniform rate for all claimants of £148.40 per week, however if you were reach the age of 65 on or after April 1st 2020 you will have to wait a further year in order to be able to claim as retirement age will rise to 66 that year.

In 2028, people will only be able to retire at the age of 67, and it is this increase in retirement ages that has helped the Chancellor to appear ‘generous’.

That said, these calculations are all based on the fact that overall we’re living longer, healthier lives than ever before so there’s every reason to be positive.

What to do next…

At the start of each year it is important to audit your pension affairs. You need to find out how many pension pots you have and work out what is in them, how well they are performing, and what the likely yield will be.

Will your pension be able to meet your financial needs?

Is your pension sufficient for the retirement you have planned?

If you are ten or twenty years away from retirement it is important to know whether there is a shortfall between what you can afford and what you can envisage.

If you find yourself unhappy with your current pension provision and would like some advice on how you can provide for the future, why not talk to a professional financial adviser.

What’s Happening To The State Pension?

Wednesday, February 18th, 2015

What's Happening To The State Pension?In the next few months with a general election on the horizon, millions of voters and savers will be eagerly waiting for news of what provision there will be for them in their retirement.

The state pension, which is currently capped at a maximum of £113.10 per week, has been amended, adapted, altered and changed by successive governments over the last half century or so. The result can be that state pensions confusing, contradictory and often unfair.

New government rules that will eventually come into effect from 2016 onwards have been drawn up in order to make state pensions simpler and fairer.

In this article we will explore the new changes and how they will affect your financial future.


Flat Rate

State Pensions are related to National Insurance contributions, a pension is simply the result of your money, plus some extra from the government which is hopefully invested wisely.

Currently, people who take a break from contributions such as new mothers on maternity leave are penalised and people who switch from full time employment to self employment may find they have less in their State Pension pot.

The new State Pension that will be introduced in 2016 will be worth no less than £148.40 per week (this is based on current rates of inflation and might be higher in 2016). The final figure will be set in August this year.


Civil Partners

Since 2010 if a married man or woman had lower National Insurance contributions, they were able to increase the size of their state pension based on the contributions of their wife or husband.

Now in 2015 couples in civil partnerships will also be able to benefit in the same way, the amount will be capped at the level of the basic state pension, which is £67.80 per week.

Married couples and civil partners who benefit from this do not have to live with their partner or even wait until their partner has drawn their pension, as long as they are eligible to draw their own.

Life Expectancy

The increases in life expectancy across Britain have had a dramatic effect on the overall cost of state pensions.

The number of years in which people are likely to be claiming has increased dramatically since State Pensions were introduced. In addition to this, the population itself is ageing, presenting the government with a major dilemma.

The answer is to gradually increase the State Pension age, and after 2020 retirement ages for men and women retiring after January 1st that year will increase to 66, rising to 67 by 2028.

If you were unsure what your State Pension age will be there is a Pension Calculator accessible to everybody, or speak to a financial adviser.


Review all your pensions

The three months before the end of the tax year in April are some of the most important in the financial calendar, particularly for savers.

If you have a number of pension pots, including your state pension, if might be a good idea in the coming weeks to review them.

Carrying out an audit of the overall value of your pensions is relatively straight forward and is especially important given the forthcoming changes to pension entitlement.

The most important task relating to state pensions is to contact the Future Pensions Centre to find out exactly what you are entitled to and when you will receive it.



The world of private pensions was changed forever last April with the ending of compulsory annuities on the vast majority of pensions, those insurance policies that savers were obliged to purchase with their pension pots.

If you are planning for retirement and need some advice about what to do with your pension in the post annuity world, why not talk to a professional financial adviser.

What Is An Annuity?

Tuesday, July 1st, 2014

Watch our latest video on Annuities

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