Flexible DrawDown Archives - Page 2 of 2 - Financial Planning in Wimbledon

Is This A Country for Old Men?

2007: No Country for Old Men – Coen’s

As an Independent Financial Adviser with a focus on pension planning, today’s news that the Bank of England are going to throw yet more money into the economy (some £50bn worth) is a mixed blessing. In theory the purpose of the exercise is to stimulate economic activity and help get banks lending and people spending. Yes, more of the “same old, same old” and single-track thinking. An economy built and fuelled by debt cannot really be good for anyone in the long-run. However, for those approaching or in retirement, one does begin to wonder if this is actually helping.

It is particularly unhelpful to those about to retire and are considering buying an annuity. An annuity is one of a range of options at retirement. In essence it is nothing more than an income paid for the remainder of your life in exchange for your pension fund. You can build options into the annuity – have it rise each year so that it keeps pace with inflation, have it continue payment to a spouse in the event of death. The more bells and whistles added the worse (smaller) the annuity (income) you get.

So how is this connected to quantitative easing? well there’s a very good brief interview with Roz Altmann, someone that I respect enormously and who has done a huge amount of good work to improve and explain pensions. She is interviewed briefly on the BBC today and discusses how more quantitative easing leads to lower Government Gilt yields, which leads to lower annuities, which is bad news for anyone planning to take an annuity right now. There are alternatives, but these are thin on the ground and in reality there is no certainty that delaying taking your pension (by buying an annuity) will be any better. It ought to be (because you would be older) but it might not be – depending on interest rates, gilt yields and so on.

This is precisely where a proper discussion with an Independent Financial Adviser can be vital, ensuring that your options are properly explored. Of significant value is a cash-flow plan which enables you to identify stress points and enables me to help find solutions for clients. A pension is one way of building up income for retirement, a good way (because of tax relief) but not the only way.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Is This A Country for Old Men?Dominic2017-01-06T14:40:09+00:00

The £billion Retirement Swindle

2011: The Great Magician – Tung-Shing Yee

As an Independent Financial Adviser, I act in the best interests of my clients. At the moment, and for as long as I have been advising clients, the term “Independent Financial Adviser” or IFA means that as your adviser I have to represent your best interests, selecting the most appropriate and suitable products from the entire market. In many respects, the financial service product providers of all types (pensions, insurance, investment) has to convince advisers to use them. This, if you will, should keep the market competitive and honest. Sadly, this system has flaws as different products pay different levels of commission as do different providers. This is why when I set up Solomons in 1999 I set the firm up so that there was no bias between products or providers, as we would be paid the same irrespective of product or provider. This fee-based system has worked very well and saved clients thousands of pounds.

As a generalisation, the financial services industry tends to rely on fear, greed and inertia. One area where inertia and financial literacy become highly significant is that of actual retirement. This has received considerable media attention of late. In essence, when your pension reached the scheduled retirement date, historically pension companies provided a quote for the pension (which is actually an annuity). Many people opt for this thinking that there is little point making any further investigation. However, this is an area of financial planning that needs particular care. This is something that the NAPF (National Association of Pension Funds) is concerned about and in a new report estimate that collectively people buying annuities could be better off by £1bn each year.

For starters, using the “Open Market Option” means that you are able to buy your annuity from any annuity provider. Some are considerably better than others – providing significantly more money each month. It is often an epiphany like moment, when you see how much more your pension can provide with exactly the same pot of money. The FSA want pension companies to be clearer in the information that they provide that their information is just a quote and better deals might be found elsewhere (you can imagine that most pension companies would not be that keen to promote this concept).

Secondly, should you have any form of medical or health condition, you might qualify for an impaired life annuity or sometimes called enhanced annuity. This will also provide more money each month for the same fund. This is because as a group, actuaries believe that you will not live to the average age (because of the medical condition). This is of course often not what happens in reality. An enhanced annuity can provide 30% more income and it is estimated that something like 40% of people taking an annuity would qualify.

Finally, (well for the sake of brevity anyway) a proper discussion about whether now is the right time to take the annuity, or indeed if an annuity is appropriate at all. There are new options for those considering retiring and these should be explored fully. Getting your retirement decisions right is vital, as it is often a decision that you have to live with for the remainder of your life and invariably that of a spouses too. This is why it is vital to review and plan your retirement options and in my opinion to have a much flexibility as the rules permit.

Call me odd, but I get a real kick from helping clients to get more for their money. It is very satisfying to find the best possible solution that results in more money in your pocket. I would be delighted to help make sure you don’t lose your share of £1bn each year. This is perhaps the only “magic” that I can perform as a financial planner.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

The £billion Retirement SwindleDominic2023-12-01T12:47:57+00:00

Talking Money

The latest edition of Talking Money will be posted to clients today. If you cannot wait for your copy, please have a look at the resources section of the main website. This issue covers topics including SIPPs, Annuities, Tax and the new Flexible Draw Down Rules.

We have also added some updated documents regarding NEST, SIPPs and Inheritance Tax. Do take a look.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Talking MoneyDominic2023-12-01T12:48:44+00:00

Russian Roulette Retirement – Six Bullets

I apologise in advance for the tone of this piece, but find myself outlining some broad details which many will find akin to teaching grandma to suck the proverbial egg. I’m also conscious that having an image of the poster from the 1978 Robert De Niro film “The Deer Hunter” is stretching the point and I don’t wish to offend anyone with the image.

Let me begin with an obvious statement. We don’t get to decide when we are born. As a consequence we don’t get to decide when we become 65. If you are “lucky” you will be 65 at a point in time when the economic cycle is good, when the markets are rising. Many however, will find that 65 comes at precisely the wrong moment. Many people are playing a game of Russian roulette with their future. You can only control so much – so what can be done?

1. Review your pension and investments. It is vital that the investment strategy ties-in with your planned need to draw capital or income (or both) from your portfolio of whatever. This sounds rather obvious I know, but this is a very common mistake that people make. In essence, the closer you get to the day you need your funds most people will want to have a high degree of certainty and not worry about the state of the global markets. As a result the investments should all be in low risk/low return holdings, possibly cash. Most people do not appreciate that their pension or endowment or whatever has a range of funds, OK often very small, but never-the-less there is a range and invariably this includes low risk funds. In an ideal world you should gradually apply “investment brakes” in a 5-year run up to the date you need the proceeds.

2. Consider what retirement will actually mean for you… many people find the transition from work very difficult, some leave high profile positions and describe life in retirement rather like “being invisible”. There is nothing to stop you earning money/working after a certain age. Certainly much will depend on what the role is and your state of health, but this is something that is within your control. It is important therefore to reflect on what you are likely to do in retirement and what income (if any) you need. By way of example, Robert De Niro turned 65 in August 2008. To date he has worked on a further 14 films since then.

3. The State pension age is being moved around all over the place at the moment by Governments that are unable to deal with maths, economics and social planning. The amount of the pension is being “reviewed” as are the qualification rules. The principle is that everyone (UK domiciled resident taxpayers) should get a full State pension, but quite who qualifies and how much tax or exemptions apply is open to debate. I suspect that for poor reasons, the State pension will one day become means-tested.

4. Ignore the impact of inflation at your peril. Good planning means attempting to maintain your purchasing power. In reality basic utilities, transport and food costs all seem to rise faster than any government approved statistic for inflation (you have been warned).

5. The goalposts keep moving. This is of course meant to be a source of great joy to Financial Advisers and Accountants as it means important things have happened which need explaining. I don’t find myself feeling this way, indeed quite the opposite. The BIG new rules are pretty much these:

5.1 From April 2012 your pension funds must not be worth more than £1.5m. There are some exemptions but all come with a catch. This is known as the Lifetime Allowance.

5.2 The amount paid into pensions per tax year per person has altered. £50,000 is the allowance, but you can use up “2 previous unused years”. Those earning good salaries in defined benefit/final salary pensions also have a complicated formula to calculate the amount that their pension increased by over the year which will restrict their allowance and in some case exceed it leading to a further tax charge. This is known as the annual allowance.

5.3 The need to buy an annuity (annual income for life) has been abolished. That said, most people will end up with one. Whatever you do, DO NOT accept the annuity quote that your pension company sends you. There will be others that are MUCH better. An adviser will sort the best for you. It may be that you have a poor medical history – or smoke, this will lead to a better annuity as, to be blunt, you have less chance of reaching the average age of death.

5.4 If you don’t like the idea of an annuity (giving up some or all of your pension fund to an insurance company in exchange for an income for the remainder of your life and possibly that of your spouse) then you can also now defer taking the annuity – potentially for good (known as DrawDown). You can instead take an income similar to that of an annuity and leave the fund invested. The fund almost certainly needs to grow, so you will have to expose the fund to investment risk. The amount of income is determined by your age, gender, size of the fund and the Government Actuarial Department.

5.5 If you have guaranteed sources of income for life of £20,000 which can include your State pension but not earnings or income from investments, then you can strip all the fund as income if you wish, simply paying the relevant rate of income tax at the time. This is known as Flexible DrawDown The £20,000 limit implies that you won’t return cap in hand to the State once you blow the lot – or if you do, you won’t find a sympathetic ear.

6. Finally (yes I cheated a little with the 5.1-5.5 didn’t I) make sure that you have thought about what you want from life. Generally we don’t control the date of our death, so ask yourself some soul searching questions. Having an enormous pension pot that you worked hard to build, depriving yourself of many “good things” only to die three months into retirement is not a good result. That’s why a good financial planner will ask some pretty personal questions. As I have probably said many times before only “magic” in financial planning to to attempt to ensure that your money does not run out before you do. This of course will prompt some very deep and big questions.

A good financial planner is perhaps a little like Joseph – who managed to make sure that enough was saved from the years of plenty for use in the years of famine, which ended up saving the entire Egyptian nation. A great financial planner will ensure that you handle the question – how much is enough?

There is no need to play Russian roulette with your future.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Russian Roulette Retirement – Six BulletsDominic2023-12-01T12:49:16+00:00

Pensions – 5 Things To Know Now

Those clients with Skandia pensions will have received a mailing from them over the last few days. In essence this outlines the new pension rules that have come into operation from 6th April 2011. The document is well written and quite clear, but it terribly wordy and dull looking – which will undoubtedly put many people off from reading it. So the key points – which apply to anyone with a pension are as follows.

1. The lifetime allowance (the total permitted value of your pension pot) will be reduced from £1.8m to £1.5m but this does not start until 6th April 2012.

2. The amount payable into all of your pensions is capped at £50,000 or 100% of your earnings (whichever is lower). However ANYONE under 75 can invest up to £3,600 towards a pension even if they have no income AND will receive tax relief at 20% – meaning that the amount paid is £2,880 with £720 provided as basic rate tax relief.

3. There is now a facility to use up (carry forward) any unused contribution allowance going back over the three previous years and assuming a maximum of £50,000.

4. There is now no requirement to buy an annuity by age 75, although in practice the great majority of people will. Remember that an annuity is simply a guaranteed income for life.

5. Provided that you have secured income of £20,000pa (which might include a State Pension) you can take the value of your pension pot as you like using the new flexible drawdown rules. You pay income tax on the money as though it was earned, but this does mean that you can effectively strip out your funds from personal pensions. This is ideal for many of our clients who want to control their income flow and tax payments.

There are other alterations, but frankly these are not that relevant to most people and I am happy to explain these in detail if required. One thing that has caused some confusion relates to tax free cash. At the moment all personal pensions (in their various forms) provide 25% of the fund as a tax-free lump sum. This has not been altered – contrary to some media speculation and suggestions.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Pensions – 5 Things To Know NowDominic2023-12-01T12:51:21+00:00