Longer Life Expectancy and it’s Financial Challenges

According to the ONS, nearly a quarter of the UK population (24%) will be 65 or older by 2042, and they predict around five times as many 65-69 year-olds will be economically active in 2067 (50.55% of the age band) compared with 1992 (10.21%).

Statistics clearly show that Britons are living longer (although with Brexit, I think some of us may be losing the will to live)! While a long life can be a good thing, longevity also brings with it some unique financial challenges. Our ageing population is drastically altering the economic landscape of the UK, the latest figures from the Office for National Statistics (ONS) have indicated.

Offsetting financial stability

Longevity, while clearly beneficial for individuals and society as a whole, is a financial risk for governments and defined-pension providers who will have to pay out more in benefits and pensions than originally anticipated.  

But it may also be a financial risk to individuals who could run out of retirement resources themselves. These risks build slowly over time, but if not addressed soon could have large negative effects on already weakened private and public sector balance sheets, making them more vulnerable to other shocks and potentially offsetting financial stability.

Old age dependency

There has also been a 29% increase in the number of working women aged 60 to 64, the data showed. As a result, the ONS has suggested the old age dependency ratio – the traditional measure of the population age structure – is ‘outdated’, as more people work up to and beyond the State Pension age.

An ageing population pushes out the age people are choosing to retire. The pension freedoms and changing attitudes towards work have enabled individuals to adopt a more transitional approach to retirement. More and more people are staying in work longer and gradually reducing their hours. Those who keep working are also contributing to the country’s economy. Indeed, many who have stopped working also contribute by providing unpaid care to family members.

Social care needs

As the ONS figures suggest, the ageing population is redefining the way people work into retirement. However, it is expected that increasing numbers will also need social care in later life as a result. The survey found that 40% of people in the UK see losing their independence as a retirement concern, while a third (29%) said they were concerned about needing to move into a nursing home in retirement.

Qualifying for local authority funding for care costs

If you have savings and assets of more than the amount in this table, you will have to pay for your own care:

Region                  Savings threshold for local authority funding in 2019/20

England                                £23,350

Wales                                    £24,000 (care at home) or £50,000 (care in a care home)

Scotland                               £27,250

Northern Ireland              £23,250

If your income and savings are above this limit, you do have the right to a care needs assessment, regardless of your financial situation.

Supporting longer lives

According to The Lancet, it is predicted that 2.8 million people over the age of 65 will require nursing and social care by 2025. Increased longevity is a point of celebration, but a consequence of living longer is that people need to have adequate funds to support their longer lives – and with increasing numbers facing the need for social care, plans need to be put in place to fund it.

The funding of social care is an emotive subject, but there’s a very audible message that people want to remain in their own home rather than having to sell it as a means of paying for residential social care. Individuals need to have a clear understanding of what they’ll be expected to pay should they need care, and there should be an overall limit or ‘cap’ on their share of care costs (but that requires a change in current policy from Government).

Achieve your long-term financial goals

If you would like to find out more about how we can help you to achieve your long-term financial goals and mitigate money worries in later life, please get in touch. We look forward to hearing from you.

10 reasons not to invest

I read this article by Nick Ferri who is a fellow Financial Adviser based in Austin Texas and wanted to share it with you.

10 reasons not to invest

Oh, how painful it has been to learn these lessons.

I’ve been around the investment industry for a long time and have made plenty of mistakes. I’ve also seen a lot of variations on the theme of investing, some of which have made the industry better and others of which seem like nothing more than elaborate ways to separate investors from their money. The growth in low-cost index investing has certainly been a positive. On the other hand, high-cost and low-quality products are still prolific in the marketplace.

The following is my Top Ten List of When Not To Invest. This list offers a few red flags to warn you when you might be getting sold something you’d best avoid. It’s far from a complete list, but it will help you learn from some of the mistakes I have encountered:

10.) If you can’t get clear answers to your questions about an investment, don’t buy it.

9.) If the risks in an investment are not clear to you, don’t buy it.

8.) If the costs to own an investment are not clear to you, don’t buy it.

7.) Avoid an investment that is promoted as “no cost to you” because you are still paying for it; you just don’t know how, or how much.

6.) Be careful about buying investments that you can’t get out of for weeks, months or years.

5.) When the words “proprietary,” “private” or “non-traded” are used, think “high-fee” and “illiquid”.

4.) Avoid products that are marketed as “smart,” because that’s just smart marketing.

3.) Don’t assume that a complex strategy is better than a simple strategy. The only thing extra complexity is likely to add is extra cost.

2.) Don’t buy investments from someone who is paid a commission without getting an objective second opinion.

1.) Don’t listen to anyone who says low-cost index funds are dangerous. What they probably mean is that index funds are dangerous to their livelihoods.

Charles D. Ellis wrote about making fewer mistakes in his classic book Winning the Loser’s Game. His observation was that winners don’t do anything special; they just make fewer avoidable errors than the losers. In investing, what separates winners from losers is the number of unnecessary mistakes we make.

I’m sure any experienced investor could share his or her own “when not to invest” lessons learned the hard way. We all have battle scars. The trick, as Ellis would agree, is not to incur any more.

Warning

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Cashing out

Pension changes brought a whole new range of options to consider

Unadvised retirees who are now able to dip into their pension are having to return to work to cope with juggling their finances, according to a new report[1].

Pension freedoms have given individuals control over how to spend their retirement savings, but a number of unintended consequences have emerged. Since rules governing how pensions can be taken were dramatically relaxed in 2015, more than a million over-55s have gone on a freedom-fueled spending spree.

New options to consider

The pension changes brought a whole new range of options to consider. Individuals now have to think about whether they want an annuity, drawdown, cash or a combination of options; when to access their pension; if it is better to use savings first before drawing their pension; and so on.

However, it seems many don’t really understand the consequences of these options. As a result, more than £23 billion has been ‘cashed out’ from the nation’s pension pots via more than 5 million individual payments. The findings show the increase in retirees returning to the workforce since the introduction of pension freedoms four years ago is due to the number of options available and the lack of professional financial advice.

Facing financial pressure

A quarter of retirees who have returned to work since April 2015 say they were faced with financial pressure. Figures from HM Revenue and Customs show around one million over 55s withdrew a 25% tax-free lump sum from their pension in the last year, up 23% points from the 12 months prior.

There is a lot to think about when you’re planning for retirement, and your circumstances will change over time, which is why it is important to obtain professional financial advice. There’s no doubt the pension freedoms have been hugely popular, but for some retirees they have come at a high price. People now face more complicated decisions in retirement, and it’s clear not everyone is getting it right.

Scale of the problem

The figures also show other reasons for returning to work that include reigniting a sense of purpose and boosting social relationships. A report from the Pensions Policy Institute shows women particularly are continuing to struggle with pensions savings. The average pension for a woman is currently £100,000 lower than for men.

Women’s pension savings have historically been impacted by a combination of the gender pay gap, part-time working and the increased burden of childcare costs, but this figure lays bare the scale of the problem.

Time to convert your pension pot into retirement income?

When you’re coming up to retirement, you have lots of decisions to make, not least how to convert your pension pot into retirement income. With more freedom comes more choice, and it’s important to obtain professional financial advice to help you decide what to do with your pension pot. To review your options, please contact us – we look forward to hearing from you.

Source data:

[1] All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,028 adults, who have accessed their DC pension since 1 April 2015. Fieldwork was undertaken between 18 and 29 April 2019. The survey was carried out online for Zurich.

If it ain’t broke, don’t fix it…

This weeks blog has come courtesy of our Investment Consultant Tim Hale from Albion Consulting.

There is always a temptation to fiddle around with a portfolio’s structure to try to position it ready for potential short-term global events, such as Brexit. Investors would do well to remind themselves that the core tenets of good investing hold true through all market conditions.  It is also worth remembering that the efficacy of a portfolio’s strategy should be judged not on the post-event outcome, but in terms of the quality, validity and prudence of its construction discipline in the face of future market uncertainty.  Portfolios are well-structured around inalienable investment truths, particularly the value of deep diversification.

Irrespective of what might happen in the future – including any of the potential permutations of Brexit – as investors we can rely on a number of truths:  markets work pretty well and are hard to beat, so capturing the market return on offer using lower-cost, well-structured products makes good sense; spreading our assets broadly to ensure the risks we face are well-diversified will always sit at the core of a successful long-term strategy; balancing out the risks of equities by owning high quality bonds provides a good insurance policy; being patient (living through the short-term dips) and being disciplined (maintaining your philosophy and strategy over time) are fundamental to achieving the returns you need to fulfil your financial goals.  At this point – given the short-term uncertainty, and possible anxiety, over Brexit – let’s focus in on diversification.

There are many ways in which an investor can be diversified, from individual securities to sectors, countries, investment styles and assets classes.  Owning a portfolio that includes many thousands of companies, all market sectors, spread across developed and emerging economies, reduces the risk of being caught out by material negative impacts in specific markets, such as the UK.  In the UK a few names dominate;  the top 10 stocks represent more than 35% of the total UK market and the largest – HSBC – weighs in at 5.3% of the broad UK market.

A market-capitalisation weight to stocks across all developed and emerging markets shows a very different, well-diversified picture.  The largest listed company in the world is Microsoft at 2.2% of the market.  It is worth noting that Microsoft’s market capitalisation is over US$1 trillion, compared to HSBC’s US$150 billion.  In a global market capitalisation weighted portfolio, HSBC’s weighting is greatly reduced to under 0.5%.  Astute investors’ portfolios hold material allocations to non-UK equities and the majority of companies that this represents.

Sector diversification also makes good sense.  Owning a material allocation to global stocks ensure that sector exposures are diversified.  The UK has some large sector allocation differences compared to the world as a whole; in particular it has no major technology companies like Microsoft, Amazon and Google, despite technology stocks representing around 15% of global equity markets.  UK exposure to technology stocks is less than 3%. The UK also has material overweights to the energy and basic material sectors. 

Portfolios are well-positioned to weather Brexit uncertainty

Brexit and the political chaos that we see before us, combined with the polarisation of politics between quasi-Marxist policies on the left and populist rhetoric on the right is unsettling for all.  We are where we are, unfortunately, whatever one’s Brexit views or political persuasion.  Yet there are commonalities in all client portfolios such as broad diversification, excellently managed, lower cost products and high quality bonds, that we can all rely on to see us through this mess.  If it ain’t broke, don’t fix it.  Portfolios are as well positioned as they can be for whatever lies ahead.  Please try not to worry too much about your portfolio.  It is in good shape.

Other notes and risk warnings

Risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Errors and omissions excepted.

Say hello to Bradley

Team ‘Carpenter Rees’

Here at Carpenter Rees, we are very proud of our team and particularly as they all share our passion for providing an excellent service to clients.

To meet growing demands and to ensure that we can continue to deliver the service that we pride ourselves on, we have recently expanded our team and would therefore like to introduce you to our newest member, Bradley Peet.

The youngest member of our team (by quite a few years), Bradley joins us fresh from Manchester Metropolitan University where he graduated with 1st degree honours in Banking and Finance.  He is looking forward to putting his knowledge into practice … as well as learning a whole lot more, including how to make a great cup of coffee.

Just when he thought his days of education were over, Bradley will shortly begin studying towards the Personal Finance Society Diploma in Regulated Financial Planning.

When he’s not at work, Bradley enjoys playing football for his 6 a-side team, going out with his friends and spending time with his family.  He is also an avid ‘blue’ supporter, which despite being a Manchester lad, is Chelsea and not City!

Timing isn’t everything

During the year’s social events it’s not unusual for the stock market to be a topic of conversation.

A neighbour or relative might ask about which investments are good at the moment. The lure of getting in at the right time or avoiding the next downturn may tempt even disciplined, long-term investors. The reality of successfully timing markets, however, isn’t as straightforward as it sounds.

OUTGUESSING THE MARKET IS DIFFICULT

Attempting to buy individual stocks or make tactical asset allocation changes at exactly the “right” time presents investors with substantial challenges. First and foremost, markets are fiercely competitive and adept at processing information. During 2018, a daily average of $462.8 billion in equity trading took place around the world.[1] The combined effect of all this buying and selling is that available information, from economic data to investor preferences and so on, is quickly incorporated into market prices. Trying to time the market based on an article from this morning’s newspaper or a segment from financial television? It’s likely that information is already reflected in prices by the time an investor can react to it.

Dimensional recently studied the performance of actively managed US-domiciled mutual funds and found that even professional investors have difficulty beating the market: over the last 20 years, 77% of equity funds and 92% of fixed income funds failed to survive and outperform their benchmarks after costs.[2]

Further complicating matters, for investors to have a shot at successfully timing the market, they must make the call to buy or sell stocks correctly not just once, but twice. Professor Robert Merton, a Nobel laureate, said it well in a recent interview with Dimensional:

“Timing markets is the dream of everybody. Suppose I could verify that I’m a .700 hitter in calling market turns. That’s pretty good; you’d hire me right away. But to be a good market timer, you’ve got to do it twice. What if the chances of me getting it right were independent each time? They’re not. But if they were, that’s 0.7 times 0.7. That’s less than 50-50. So, market timing is horribly difficult to do.”

TIME AND THE MARKET

Let’s take the example of US equities. The S&P 500 Index has logged an incredible decade. Should this result impact investors’ allocations to equities? Exhibit 1 suggests that new market highs have not been a harbinger of negative returns to come. The S&P 500 went on to provide positive average annualised returns over one, three, and five years following new market highs.

Exhibit 1.        Average Annualised Returns After New Market Highs
S&P 500, January 1926–December 2018

CONCLUSION

Outguessing markets is more difficult than many investors might think. While favorable timing is theoretically possible, there isn’t much evidence that it can be done reliably, even by professional investors. The positive news is that investors don’t need to be able to time markets to have a good investment experience. Over time, capital markets have rewarded investors who have taken a long-term perspective and remained disciplined in the face of short-term noise. By focusing on the things they can control (like having an appropriate asset allocation, diversification, and managing expenses, turnover, and taxes) investors can better position themselves to make the most of what capital markets have to offer.

Past performance is no guarantee of future results.

In US dollars. New market highs are defined as months ending with the market above all previous levels for the sample period. Annualised compound returns are computed for the relevant time periods subsequent to new market highs and averaged across all new market high observations. There were 1,115 observation months in the sample. January 1990–present: S&P 500 Total Returns Index. S&P data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. January 1926–December 1989; S&P 500 Total Return Index, Stocks, Bonds, Bills and Inflation Yearbook™, Ibbotson Associates, Chicago. For illustrative purposes only. Index is not available for direct investment; therefore, its performance does not reflect the expenses associated with the management of an actual portfolio. There is always a risk that an investor may lose money.

Source: Dimensional Fund Advisors Ltd. or Source: Dimensional Ireland Limited.

Warnings

The views and opinions expressed in this article are those of the author and not necessarily those of Dimensional Fund Advisors Ltd. (DFAL) or Dimensional Ireland Limited (DIL). The Issuing Entity accepts no liability over the content or arising from use of this material. The information in this material is provided for background information only. It does not constitute investment advice, recommendation or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision.

Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.

References

1]. In US dollars. Source: Dimensional, using data from Bloomberg LP. Includes primary and secondary exchange trading volume globally for equities. ETFs and funds are excluded. Daily averages were computed by calculating the trading volume of each stock daily as the closing price multiplied by shares traded that day. All such trading volume is summed up and divided by 252 as an approximate number of annual trading days.

[2]. Mutual Fund Landscape 2019.

The Purpose of Money is NOT Just to Make More of It

Imagine that you’re living in a tent on an open plain.

One day you plant a tree. For the next 40 years, you water it. You protect it from harsh weather and animals. You never pick its fruit. You don’t climb it for fun. You don’t take a break and rest in its shade. You don’t even cut down some branches to build a house. You never go anywhere or do anything else because you’re focused solely on growing that tree bigger and bigger.

Finally, one day, just after your 65th birthday, the tree stops growing.

You look up at its enormous trunk and wide spread of branches and say to yourself …

“What was that for?”

Many of us treat our financial planning in a similar fashion. We become so caught up in the work that goes into “growing the tree” that we never think about harvesting the fruit or timber to make a better life for ourselves. As long as our tree keeps getting bigger, we keep putting in the work of growing it, even if that work doesn’t engage our interests or put our unique talents to their highest purposes.

Then retirement comes along.

Faced with the prospect of no longer working, some soon-to-be-retirees feel lost. Their sense of purpose was so connected to working hard to make more money that they never stopped to ask themselves what that next pound was really for.

Some defer retirement as long as they physically can to keep chasing after more money that they don’t really need and will never actually spend.

Others become so concerned about running out of money that they live too conservatively and never enjoy their retirement.

And others potter aimlessly around the house re-arranging the furniture for the 10th time.

A better sense of purpose.

There is a purpose to having money and growing your wealth. But what money can’t do is create purpose in and of itself.

Eventually, your tree is going to stop growing. You’ll be able to live comfortably off the money you’ve saved and the income that your investments will continue to generate. After a lifetime of working hard and following your financial plan, your return on investment will be financial security in retirement.

That’s when it’s time to stop worrying about the tree and start harvesting.

That’s when it’s time to stop focusing on your return on investment and start enjoying a better Return on Life.

But here’s the thing—the earlier you’re able to make this shift into a Return On Life mindset, the sooner you’ll be able to live the best life possible with the money you have. Don’t wait until you’re 65 to start harvesting that tree and enjoying life. You can trim that tree a bit each year, enjoy life today, while still growing it for the future.

Enjoying life along the way will make your eventual transition to retirement even easier. Instead of struggling to replace work with leisure, you’ll be ready to pour even more of your time and energy into the activities that really matter to you.

Start by asking yourself, “What is my money really for?”

Is it for going on dream holidays with your spouse? Is it for taking classes that enrich your mind and body? A second house for weekend getaways? As much golf or tennis as you can squeeze into a day? The freedom to volunteer your time and professional expertise at an organisation that’s making your community better? Finishing a major house renovation, you’ve been putting off? Seed money to grow your own business?

Your life will take on a brilliant luster when you start to use your means in a meaningful way. Let’s talk about how we can help you find that meaning and put your live at the centre of the financial planning process.

Warning

The information note above is not intended as advice and should not be relied upon as such. We therefore accept no liability or responsibility arising from any reliance placed on such information to the fullest extent permissible by law.

 

Will you spend less in Retirement?

So … you’re thinking about retiring. To prepare, you’ve been adding to your personal pension plan or employers pension scheme, getting an estimate of your state pension scheme benefits and topping up your ISA.

This is all to provide you with an income when you stop working. But what about planning for the other end of the equation: What should you expect to spend if you want to at least maintain, if not improve your standard of living in retirement?

Since almost everyone wants to retire someday, there’s a bounty of familiar adages, rules of thumb and popular perceptions on what it’s going to take. One of the most common ones I hear is this: I probably won’t need to spend as much once I retire.

Lower income taxes, shorter commutes, homemade meals, etc. At one point or another, you’ve probably been told there are lots of ways to live well for less in retirement. There may be. But have you actually run the numbers based on your own expectations? If you’re simply assuming a bounty of savings will fall into place, just because, I’m afraid you’ve got more planning to do. Let’s break the process into three digestible bites.

  1.  Who Are You, Really?

As I mentioned, there are plenty of ways many people can lower their cost of living in retirement. But retirement isn’t a magic wand. It won’t change who you are, nor will one size fit all.

So, first things first. Take some time to think through which potential cost savings actually align with your personal preferences. Out of all the costs you could reduce …

  1. Which are the costs you’d be happy to cut? Income taxes, for example. Who would miss those?
  2. Which are the cost cuts that wouldn’t bother you much, if at all? Little things can add up, especially if you won’t miss them anyway.
  3. Which are the cuts you could make, but when push comes to shove, you’d rather not? You may want to list and prioritize these, so you can decide where to draw the line.
  4. Which potential cost savings aren’t even realistic for you? Be honest with yourself about what you can and cannot do without.

In other words, be sure to make your spending planning about you … not some fantasy “you” who you wish you could be. Potential cost savings in retirement may look great on paper. But think through how you’ll really feel about them. If you’re a couple, that goes for both of you! I’ve seen too many families become overly optimistic about how much of their spending they’ll be willing to jettison in retirement. That’s no good if you find yourself neither up to the challenge or awfully unhappy with the results.

  1. What Are Your Numbers?

Once you’ve got a sense of the actual lifestyle you’d like to achieve, it’s time to get a solid grip on the numbers involved. What expenses are really going to change, and which will probably remain about the same? Are you supporting your kids, your parents, or both? Have you paid off your mortgage? What other expenses might show up, or go away? Again, this involves a healthy dose of realism.

For example, what if one of your grand plans is to downsize from your gigantic, family-sized home into a place more fitting for your retirement lifestyle? If you’re hoping this will also free up a big chunk of change to fund your new lifestyle, be sure to carefully quantify the costs involved. There can be costs to prepare your property for sale, estate agent commissions, legal fees and moving expenses. You’ll also need to buy or lease your next house, where you’ll probably have a new wish list of upgrades or renovations you’d like to make and stamp duty to pay.

You may still want to downsize even if it’s not going to be the screaming deal you were hoping for, but it’s a good idea to proceed with your financial eyes wide open.

Without going into painful detail, sensible tax planning may warrant intentionally incurring extra taxable income in early retirement, with an eye toward paying less income tax overall. This is especially the case if you are likely to fall foul of the Lifetime Allowance Tax Charge at age 75 in respect of your pension benefits.

In other words: That huge tax cut you were anticipating? It may end up being less than you expected.

  1.  Has Anything Changed?

This brings me to my final point. Retirement planning isn’t a single event; it’s an ongoing process. If all goes well, you may be retired for decades. The standard of living you’re planning for in early retirement is unlikely to be the same one you’ll prepare for later on.

Initially, you may want to travel, volunteer, improve your golf handicap, and spend more time with the grandkids. You may be called on to take care of your parents. You may want or need to keep working off and on.

Over time, you may become less active and as a result your expenditure may fall.

For all these reasons and more – the more realistic you are about your true costs in retirement, the more likely you’ll be able to maintain your lifestyle. And, the more personalised numbers you factor into the equation, the more realistic you can be. For that, we employ our financial modelling tools and use these to illustrate if you have enough and what the outcomes could be given future markets falls and lifetime events.

 

Lifetime allowance – Breach may impact on more than a million workers!

An estimated 1.25 million people are set to breach the current lifetime allowance (LTA) limit of £1.055 million for pension tax relief over the course of their working life, according to new research published[1].

The LTA is a limit on the amount of pension benefit that can be drawn from pension schemes – whether lump sums or retirement income – and can be paid without triggering an extra tax charge. It has been cut three times since 2010, and this research estimates that around 290,000 workers already have pension rights above the limit, and well over a million more people are at risk of breaching it by the time they retire.

Facing a tax charge of up to 55% on pension savings

Those who exceed the LTA could face a tax charge of up to 55% of their pension savings above this level at the time of testing. Around 290,000 non-retired people have already built up pension rights in excess of the LTA. Fewer than half of these are thought to have applied for ‘protection’ against past reductions in the LTA and so could face significant tax bills when they draw their pension. Worryingly, many may be unaware of this.

Almost half of these people who are already over the LTA are continuing to add to their pension wealth, thereby storing up an even bigger tax charge with every passing year and amongst non-retired people who are not currently over the LTA, an estimated 1.25 million can expect to breach the LTA by the time they retire.

Groups likely to breach the lifetime allowance

The two main groups likely to breach the LTA are relatively senior public sector workers with long service, whose Defined Benefit pension rights will exceed the LTA. This is a specific problem in the NHS where it has been indicated that up to 100000 doctors and consultants may consider leaving early if this is not rectified. This is something that concerns the current government and hopefully there may be plans afoot address the situation. In addition, it impacts on to relatively well paid workers in a Defined Contribution pension arrangement where their employer makes a generous contribution into their pension pot.

Highest earners may be less affected by the Lifetime Cap

Typical salary levels of those affected are in the range £60,000–£90,000 per year. But ironically, the very highest earners may be less affected by the Lifetime Cap because they are now heavily limited by the amount they can put into a pension each year.

The data suggests that only a couple of thousand people exceeded the LTA in the latest year for which figures are available (2016/17). The number likely to face a tax charge could therefore increase more than a hundredfold, purely based on those who have yet to retire but who have already exceeded the LTA.

Workers who would not regard themselves as ‘rich

The research finds that one of the reasons why so many people will exceed the LTA is that current policy is simply to increase it each year in line with price inflation (as measured by the CPI).

By contrast, wages will tend to grow faster than inflation, and the money invested in pension pots should grow faster than inflation over the long term. This means that the LTA will ‘bite’ progressively more severely over time and will subject hundreds of thousands of workers who would not regard themselves as ‘rich.’

Need help with your options for retirement?

Wherever you are in your retirement journey, we’re here to support you, whether it’s starting a pension, saving more into your plan or helping with your options for retirement. For more information, please contact us. 

Source data:

[1] Research conducted for Royal London is based on detailed analysis of data on more than 7,700 workers from Wave 1 and Wave 5 of the ‘Wealth and Assets Survey’ March 2019.

 

 

 

Why silence isn’t necessarily bliss

Over six million adults refuse to discuss their Will with loved ones

Making a Will is very important if you care what happens to your money and your belongings after you die, and most of us do. But have you tried to talk with your parents about their Will? If that conversation isn’t happening, you’re not alone

And it’s not only parents who are uncomfortable. Adult children may also be nervous about raising the topic of their parents’ finances for fear they appear greedy or nosy. Understandably, talking about dying can be seen as ‘taboo’ and it is not always easy to bring it up. However, discussing your Will with beneficiaries means they are better prepared when the time comes.

However, worryingly, almost six and half million adults refuse to discuss their Will with loved ones according to a recent research[1]. A quarter (26%) of people with a Will say they will not discuss it as they do not want to think about dying and one in four (27%) do not want to upset beneficiaries by discussing the contents of their Will[2].

It is also hugely important for family members to be aware of vital decisions in your Will, such as who will look after your children. By overcoming ‘death anxiety,’ the natural fear of talking about death and the emotions associated with it, these important conversations can ensure your beneficiaries are aware of your wishes and understand them.

Nearly half (45%) of UK parents, the research identified, with adult children believe their Will is ‘no one’s business’ but their own or a partner’s. But sharing the contents of a Will makes the financial and practical consequences of death easier for those left behind. Losing someone can have a huge impact on finances for months or even years to come, so it is crucial for families to be prepared.

‘When I’m gone’ conversation with your partner or family

  • Avoid talking to someone when they’re busy. Look for opportunities to broach the subject, such as when you’re discussing the future or perhaps following the death of someone close to you
  • Consider beginning the conversation with a question such as, ‘Have you ever wondered what would happen…?’; ‘Do you think we should talk about…?
  • Think about how you would manage financially should the worst happen. What impact would losing a partner or family member have on your household income and your expenses? Be aware that your financial situation may change in the future
  • Make sure you know where all important documents such as Wills, bank details, insurance policies, etc. are kept, so that you have all the information you might need
  • Prepare in advance – would you know how to manage the day-to-day finances? If not, consider how you could start to learn about them now so this doesn’t come as a shock

In the event of an illness, loss of capacity or death, are your plans in place?

Many of us will eventually reach a point in our lives when we require specialist assistance to ensure that our family will be able to cope better and manage their affairs in the event of an illness, loss of capacity or death.  If you would like to review your particular situation, why not give us a call?

Source data:

[1] Royal London – six million figure is based on ONS adult population stats of 52.8million. Our research shows 47% of UK adults have a Will – 26% of this figure equates to 6,458,535.05

[2] Opinium on behalf of Royal London surveyed 2,006 adults between 26 and 29 October 2018. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).