Articles about the run up to retirement

THREE DECADES OF RETIREMENT

Three Decades of Retirement

Three decades of retirement is the prospect that many people face if you believe that longevity is improving in general. That’s three decades to live off your investments, pensions and savings combined with any other forms of income from your State Pension and perhaps an employer’s final salary (defined benefit) pension which typically begin payments at 60, 65 or 67.

Three decades is a long time, with a lot of living to be done. To put this into perspective, it is now 2018, 30 years ago was 1988, which frankly does not seem that long ago does it? You remember 1988. It was the year the SDP merged with the Liberals, Margaret Thatcher became the longest serving PM and Comic Relief was launched. Nurses went on strike over pay. Red Nose Day raised £15m within a month the £1 note became obsolete and the Chancellor of the day Nigel Lawson cut the basic rate of tax to just 25%.

If you are into your sport, well Liverpool were beaten in the FA Cup final by Wimbledon. Graeme Hick scored a record 405 runs in a county match. Sandy Lyle won the US Masters. “Gaza” became the first £2m footballer moving from Newcastle to Spurs. The Seoul Olympics saw Team GB win 5 gold medals (hockey, swimming, rowing, shooting and sailing).

Released in 1987, Faith was the top selling album of 1988.

Another year, just like any other…

As with every year, it had its share of horror and disaster, Piper Alpha, Pan Am 103 exploding over Lockerbie, killing 207 people and a train crash at Clapham Junction killed 35 people. Edwina Currie managed to create an egg crisis. British films released included “Buster”, “A Fish Called Wanda” and “A Handful of Dust”. Michael Douglas won best actor for his role in “Wall Street” ad “The Last Emperor” picked up a stack of awards. Kylie Minogue started her pop career with “I Should Be So Lucky” (she was) and life was “Perfect” for Fairground Attraction. I was one of 80,000 at Wembley for the “Free Nelson Mandela Concert” and his 70th birthday. He was still imprisoned (not released until 1990).

Then and Now

If you are over the age of 40 this may jog a few memories of 30 years ago. The UK population was   about 56m today its about 66.5m. There were about 55,000 first-time graduates, now the number is around 414,000. The Bank of England’s base rate began 1988 at 8.37% but ended at 12.87% (yesterday the Bank increased the rate from 0.50% to 0.75% and some got worried). The FTSE100 closed the year at 1,793 yesterday it closed at 7,575 and that excludes all income from dividends over 30 years. A 10-year UK Government Bond paid about 9.79% in 1988, today around 1.23%. In short equities have gone up, Bonds have gone down. £100 in 1988 would need to be £260.44 in 2018 simply to be “worth” the same because of inflation. That’s an average rate of about 3.24%, in short, the value of your pound has more than halved.

Multiple Choices, Make them Count

This is history, a version of it. If you are now in your mid 40s or older, this is time spent. Who knows how long any of us have left but making the most of life and getting our money to last, whatever it brings is the prospect that you face. We work with clients taking a long-term perspective of life and money. We regularly review progress and make adjustments to ensure that your financial planning remains on course. Change is the constant that we all live with, but many investment principles are timeless, knowing what to adjust is probably more important than knowing you need to.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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THREE DECADES OF RETIREMENT2018-09-25T09:58:19+00:00

FREEDOM BRINGS RESPONSIBILITY

Freedom Brings Responsibility

I hope that you are aware that since April 2015 pensions have had considerable improvements. Rather than having to buy an annuity anyone with a pension can simply take income from age 55 however they want (note that this age is gradually rising to be within 10 years of your State Pension Age which you can check here). As income it is taxable, but your pension fund has the benefit of 25% of anything “crystallised” being tax free. This you may remember, concerned some that there would be a rush on Lamborghini’s… which didn’t materialise. Mind you at £270,000 for a new Aventador, you would need to withdraw around double that to be able to pay the net price.

Many of you have been accessing your pensions under these new conditions. According to the latest HMRC data in Q2 (April to end June) of 2018 the number of individuals to whom payments were made reached 264,000. A total of £2,269m was paid out to them. The system has now been in place for 3 years and the value of all payments is now nearly £20,000m (some would say that’s £20bn).

Gone in 0-60 Seconds?

The basic caveat is that once your pension fund is spent, well… its gone. There have been many mistakes made – particularly in terms of taking too much money out and paying tax unnecessarily. As the income from the pension is assessed as income, those that believe that they can simply have their money are right, but invariably forget that the amount means that they must pay 40% or 45% income tax. Clever, or rather sensible planning can keep tax at 20% or less.

The Government and HMRC are probably rather pleased with this, it means that they are taking way more tax than they would have done, particularly as many of those drawing money from pensions are doing so before they are even retired.

Tax First, Ask Questions Later

HMRC also apply their own brand of logic, which is tax first, ask questions later. In other words, you must reclaim tax when too much has been taken. Despite lobbying by financial advisers and the pension industry generally, HMRC aren’t budging on changing their approach, claiming that people are better off paying too much than too little and then having to find money to pay their tax. Since the start of pension freedoms this “over-taxing” has amounted to more than £280m. So hardly a surprise that they won’t budge. Of course, this ought to be reclaimed… but therein lies the problem of theory and practice and in any event the Office of Tax Simplification recently warned that pension freedom withdrawals are poorly understood… one might be forgiven for wondering what on earth the OTS achieve.

To put your mind at ease, you need to complete the snappy titled “P55”to reclaim overpaid tax on your flexible pension. You can find the form here.

Here’s a video of an Aventador being tested by Autocar… no need to form a queue.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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FREEDOM BRINGS RESPONSIBILITY2018-09-25T10:22:31+00:00

The Leisure Seeker

The Leisure Seeker

Those that are not retired have many rather cliched ideas about retirement. Invariably these involve lots of leisure, cruises, golf and gardening. Most of the retired people I work with often voice that they are busier than ever, its simply that they don’t have to turn up for paid work.

The Leisure Seeker is a gentle movie about the Spencer’s, John (Donald Sutherland) and Ella (Helen Mirren) who decide to take one last once in a lifetime trip together in their recreational vehicle, a leisure cruiser. Their adult children are left confounded at what they perceive to be irresponsibility, given that John is clearly suffering from signs of dementia.

Memory Lane

The couple take a trip down memory lane, with mixed results. Johns dementia creates a scenario where his confusion about who, where and when he is, leads him to expose some deeply buried secrets. He is also paranoid that Ella is having an affair with Dan Coleman, who he believes is the secret motivation for their trip together.

The cruel irony of John’s dementia means that he is not even aware of the loving nature of their trip, a special excursion to Hemingway’s house in Key West, John’s literary hero, of whom he has recounted many insights to his English students throughout his career.

How does it End?

Any good financial planner will inevitably address the question of your life expectancy. All planners work on the basis of attempting to ensure that your money lasts just a little longer than you do. Naturally, this is educated guesswork and requires regular reviews. However, we also need to be mindful of the difficulty of an ending of a life. Simplifying arrangements where sensible to do so, without ruining years of sensible investment strategies and estate planning.

The film exposes the need to discuss these issues with someone trusted, certainly it would make sense for your planner to have an idea or awareness of your intentions, as it would be for your family, though the emotional dynamic of family relationships makes such a conversation problematic and rich material for drama.

The truth is that all of us face an ending, it’s simply a question of how, why and when. Here is the trailer for the film, which being small, is now reaching the end of its run in selective cinemas.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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The Leisure Seeker2018-05-15T12:11:04+00:00

Are Annuity Rates on the Rise?

Are Annuity Rates on the Rise?

Annuities may be starting to improve again. Why is this relevant to you? Well, if you plan to retire you would be wise to consider an annuity as an option for all or part of your retirement income. If you are already retired and using a Drawdown arrangement, improvement in rates may also be worth your attention.

New Rates

I recently received an email from one of the UKs largest insurance companies advising of change to their annuity rates. In general rates have begun to increase upwards. As an example, a 65 year-old with the maximum single life annuity from £100,000 would now receive £4,944 a year rather than £4,896 a year, an increase of about 1%.

How long is a lifetime of income?

Anyone wanting to build in a spouse’s pension of 50% (i.e. once the “owner” (annuitant) of the annuity dies, income would reduce to 50% for the remainder of the spouse’s life) can expect the same fund to buy an annuity of £4,420 up from £4,375. These are for level annuities (the income remains the same). You could build in a degree of inflation-linking, doing so would reduce the initial income for a joint life annuity £2,818 a year increasing by 3% each year.

The crossover point

The alarming detail is that it would take 17 years (in my example) for the inflation (rising) annuity to match the annual income of the level annuity, at which point it continues to pay out more each year (i.e. a 65-year-old would be 82). It takes a total of 30 years before the total income paid out would exceed that of the level annuity. Remember that this is for someone that started their annuity at age 65.

In truth, there are better annuity rates out in the market. You should also note that if you have any form of health problems, or smoke, you would probably qualify for an enhanced annuity. However most people would look at a pot of £100,000 and think an income of £4,420 is not terribly much and any “bells and whistles” added just make it worse. Hence pension freedoms and the abolition of the requirement to buy an annuity.

However, despite appearances annuities offer a guaranteed lifetime income, no other alternative really does that, but instead relies upon investment returns, which obviously means risk. Since pension freedoms (April 2015) many people have chosen not to buy an annuity and have taken their income from a drawdown pension instead. Unfortunately, according to recent research, many will run their pension pot dry within 12 years. Most people take too much it would seem, or at least an unsustainable amount. Almost everyone under-estimates their life expectancy, which is a crucial discussion to have and one that needs regular reassessment.

So now you know that:

  • There are different and better (higher) annuities available in the market
  • Health issues might provide a better (enhanced) annuity
  • Drawdown pensions carry risk
  • Life expectancy is a key factor
  • Most people are expected to run out of money
  • Review, review, review – especially if you have a Drawdown pension

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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Are Annuity Rates on the Rise?2018-01-09T16:15:23+00:00

The Eye of Truth – Mindhorn

The Eye of Truth – Mindhorn

It seems that we are living in a time of “alternative facts” of course we aren’t it is merely that certain politicians and business leaders wish us to believe their point of view rather than reality. So perhaps there is a certain sense of good timing for a bionic eye that enables truth to be seen. However, as with most things, the irony in this instance, is that the possessor of the bionic eye, (Mindhorn) is blind to his own shortcomings.

Mindhorn is a new comedy about a TV actor “Richard Thorncroft” (Julian Barratt) playing a detective “Mindhorn” in the 1980s. Now many years later, the type cast, washed up actor is struggling to maintain his dignity in a world that has forgotten him. He is rescued by a serial killer; whose own delusions mean that he believes that Mindhorn is real. As a result, reluctantly the local Police call in Mindhorn for one last performance to entrap the villain.

Bodie & Doyle meet Steve Austin and Knight Rider

Being comedic, this has the potential to be a rip take of any and every TV detective since Bodie and Doyle at CI5 with references as broad as the lapels. How one man is stuck in the past of his glory days and failing to embrace the present, or indeed the uncomfortable truth of reality. Sadly, the film, like many, has all of its best bits in the trailer. There are some funny moments, but this is a fairly tame affair which could have been so much better, despite being rammed with an impressive collection of actors, who all must have also thought that the concept was good, but the final delivery…. Hmm. Take comfort in the fact that there are as many twists as there are in a straight piece of wood, which certainly could not describe the acting, but recycled pulp is probably not far off the truth about the script.

Former Glories

On occasion, we all meet people that are an echo of their former greatness. Whilst I can accept that with age limitations do apply, particularly the laws of physics! It seems such a missed opportunity to not live fully irrespective of age. I’m sure that like me, you meet many that do. Retirement can seem like a fairly scary subject for some people. What on earth will they do with their time? Just endless rounds of golf and bridge? Well, I can assure you that the retirees that I advise all have very active lives, in fact most are more active than ever before. I’d argue that retirement is nothing to fear at all – infirmity however, well, that’s a different thing entirely.

A Vibrant Retirement

So any financial plan, should really be set up for a full and vibrant retirement, one that reflects what you wish to do and how you intend to spend your time. Of course things may change over time and for some, infirmity may become an unwelcome compatriot, so some thought also needs to be given to the “what if?” of this prospect…. Which may or may not occur.After all, even the Duke of Edinburgh has only just annoucned that he will “retire” later this year – and he’s 96 in a few weeks time! Financial planning is very much about taking a look into the future and making some changes now, if you don’t like what you see (albeit with loads of assumptions). It is never a sense of constantly trying to restart the glory days like Mindhorn. There are some things that need to grow, some that need to die and some that simply need to be tried.

Here’s the trailer for Mindhorn. It makes a compelling pitch as a comedy, but sadly lacked the final punchline.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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The Eye of Truth – Mindhorn2017-05-09T14:00:34+00:00

The Future of Pensions

The Future of Pensions

I am currently at my annual conference in Wales – the Chartered Institute for Securities and Investments (CISI) with whom the IFP – Institute of Financial Planning merged last year. Yesterday we covered a number of valuable topics, but the talk that resonated most with me was from former Pensions Minister MP Steve Webb, who talked about the future of pensions – amongst other things.

I had to admit that my BS radar is usually on hyperdrive when listening to any politician these days, which is probably a sad reflection on me, however I was very impressed by what he had to say, albeit he did not paint a terribly pleasant picture of the future. Of course, only time will tell if his predictions come about and in fairness, he was quick to remind us of the problems with predicting the future, particularly in a climate where since the last general election all of the major political parties have changed their leaders and the country has voted to leave the EU.

Book cover of Yes Minister - A Very Courageous Decision

Play it again Sam…(or Phil)

Webb was clear that changing pensions is pretty difficult and appears to be a low priority to either the Government of Civil Service. He gave an insight into the slow turning wheels of Whitehall, sounding much like an episode from Yes Minister. Given all the change that we have had (State Pension, Auto Enrolment, Pension Freedoms, Annual Allowance Taper, Lifetime Allowance…) he suspects and urges a period of quiet inaction from the Chancellor, Philip Hammond. This is particularly pertinent to those concerned about the loss or reductions of tax relief on pension contributions or changes to the tax free cash entitlement. He made the case that the public and financial planners could not plan ahead in confidence if the rules are changed every year, yet warned at Chancellors are easily tempted by ideas to collect more tax, however short-sighted.

Whilst on the subject of tax he made it clear that the Treasury are naturally inclined to taxing now rather than in the years ahead, so there is a very real pressure to take the view that tax relief reductions in the short-term outweigh the advantages of taxed incomes in the future, so by inference, a system of loss of tax relief and no taxation of pension income is a genuine prospect. He argued that this was evidenced by the Treasury’s love for ISAs and obvious contempt for pensions with the Lifetime Allowance reductions (and associated tax penalties) and the new tapered annual allowance. Personally he would scrap the LTA but retain a cap on annual pension contributions (which I certainly agree with). He did point out that of course putting trust in future Chancellors to honour a commitment not to tax pension income in the future required a high degree of faith, which  deliberately provoked some mirth from the audience.

Turning to Brexit, he simply outlined his view that interest rates are likely to be very low for a long time, which would place pressure on people to look for better returns than the puny sums they achieve from their savings. He argued that this would likely lead to yet more scams as people fall for yet more illusory promises of high returns. He also warned of the impact on final salary pension schemes which, because of the assets that they hold and the way calculations are performed, would have larger deficits in their pensions (due to low interest rates) probably leading to some, or perhaps a majority of companies trimming their dividend payments.. which in turn makes the task of achieving investment income harder still.

He seemed to have little regard for our regulator of whom he said was “not fit for purpose” and thought the new LISA was perhaps the most badly constructed investment idea for years. If you follow me on social media, you will know my thoughts on this already.

So, whilst Steve Webb found a receptive audience, I was left with the sinking feeling that there was little hope for common sense to return to the Treasury… but who knows… we all get to find out in a few weeks time for the Autumn Statement.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

The Future of Pensions2017-01-06T14:39:13+00:00

Understanding Your Pension

Understanding your pension

I came across an example of an experience that most financial planners have from time to time. An adviser took on a new client. The clients believed that they had about, (let’s call it X) in their pensions, it surprised them and their adviser to learn that in fact they were worth considerably more (X + about £300,000).

The way the story was framed within the financial pages suggested that the adviser had created a huge return, in fact this was nothing to do with the adviser and rather missing the point. The point being that many people simply do not know what their pensions are worth. I do not believe that this is because of a lack of intelligence, but rather the very confusing statements issued by most pension companies.

Have a look at your pension statement, does it actually tell you what your pension (or investment) is actually worth? There’s the rub, sometimes admitting not understanding something because we are told “it’s rather obvious” is a very difficult admission. Yet I cannot emphasise enough that there are no stupid questions when it comes to your money. Any adviser that dismisses your question as “stupid” should be dismissed. His or her job is to sufficiently explain what you have, what it does, what it’s worth and why you’ve got it. If you don’t know, change your adviser.

There is no stupid question

Sadly it would appear that even senior economists that advise the Bank of England fail to understand their pensions – dare I suggest that such a statement may also be true of those that determine pension laws and tax rates.

In essence the concept of pensions is basic. Here it is. You save over time to enable you to live off the proceeds when you retire.  There are really two types of pension. One that is purely investment, so the size of the pot fluctuates daily, what you get is what you get. The other is a final salary pension – based on how long you worked for your employer and what your final salary was – you get a percentage of your final salary for life, with inflation. This type are now the equivalent of “gold dust”.

There are of course complexities, all of which were dreamed up by meddlesome politicians and their advisers to either encourage or discourage certain behaviours so that they could give the appearance of actually reflecting their stated manifesto values and aims. The UK pension system is particularly complex, the principles are not. To make matters worse, the jargon used has been made up by parties with vested interests (including financial advisers).

So help me to help you… to understand what you have so that you have a basis on which to make some sensible decisions. Do not leave it to the political elite.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Understanding Your Pension2017-01-06T14:39:17+00:00

Pension Tax Relief Changes?

Pension Tax Relief Changes?

It would appear that further changes for pensions are likely. Pension tax relief has been “under review” which I always take to mean a report into the impact of a decision has been already made. At present whatever your rate of tax you receive as relief for any pension payment that you make.

As outlined within this blog before, in practice this costs HMRC a lot of money and is essentially a gift back to anyone that appears to be deemed as “rich” which as far as I can tell from Government and Opposition policy is anyone earning something between £50,000 and £1million as anyone with an income above £1m seems to largely avoid paying any tax her in the UK.

The expectation is that relief will be 33% so that a neat little explanation of tax relief can be spun by the media – 2 for 1… that is £2 from you £1 from the Government. Personally I fail to see how this is sensible as it’s an extra 13% for most people and a reduction of only 7%-12% for higher and additional rate taxpayers. It would be more sensible to have a standard rate of 25% which then at least correlates to the 25% tax free cash lump sum. 3 for 1 is just as simple to spin.

Constant Changes to Pensions

This comes on the back of other pension reforms

  • Pension freedom – abolition of any requirement to buy an annuity, retaining your pension as an investment portfolio.
  • Reduction in the Lifetime Allowance (£1m from 6th April 2016)
  • Online application for Lifetime Allowance Protection
  • Reduction in the Annual Allowance to £40,000
  • Annual Allowance tapering for those with income of £150,000+ from 6th April 2016 reducing the annual allowance to a maximum of £10,000.
  • Auto Enrolment or Workplace pensions
  • Changes to what constitutes a “year” input years are reverting to tax years.
  • Flat rate State Pension
  • Changes to the State Pension Age
  • Legislation to give HMRC the ability to take money from your bank account

Some of these changes are welcome, some are not, and many seem to be altered each tax year, making planning for the future somewhat awkward to say the very least.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Pension Tax Relief Changes?2017-01-06T14:39:20+00:00

Pensions – more needless headaches the Lifetime Allowance

Pensions – more needless headaches

You may recall that Mr Osborne in his great wisdom has decided to reduced the current lifetime allowance even further, just to clarify – the Lifetime Allowance is the value of your pensions, either in payment or being built up. It currently stands at a figure of £1.25million but from 6th April 2016 will reduce to £1million.

It is very easy to calculate the value of your pensions, provided that they are purely investments pensions, such as personal pensions, SIPPs (self-invested personal pensions). You can also exclude the value of your State pension.

However, if you have an annuity in payment or old final salary pensions or perhaps simply a current final salary (or career average) pension (called a defined benefit pension scheme) such as the NHS or Teachers Pension, the sums are considerably more complex.

Long story short, once the value of your pensions has been calculated you may find that you have exceeded the lifetime allowance – which is reducing. So you will need to do something about this, which may well involve some uncomfortable decisions about future membership of pensions, even or perhaps especially, good ones, which is utterly daft.

Another bonkers pension policy

Yes, I did say bonkers. Despite what Mr Osborne may say about helping people to help themselves, he is actually restricting the amount that you can build in your own pension, actively discouraging saving, which does seem to be rather at odds with any historic Conservative policy in history, unless you count the lamentable decision by Norman Fowler to remove the rule that enabled employers to make membership of an occupational pension scheme a condition of employment, allowing the employee to contract out and not join the pension scheme. In fairness to Mr Osborne, with the benefit of hindsight, Mr Fowler probably takes the prize for arguably the most loopy pension decision for generations.

Mr Fowler was under the misguided impression that this brought about freedom for employees to decide if they really wanted to be in their employer’s pension. Mr Osborne can only be motivated by collecting more tax as there are 55% tax charges applied to amounts that exceed the lifetime allowance, unless you have the relevant protection, which is also not really guaranteed.

We are not talking about small sums of money here. So you need to gather your information, for two specific dates 5th April 2014 and 5th April 2016. This creates a headache for you, a massive task for me and in my opinion the lifetime allowance is one of the worst pension ideas in history – penalising both those that save and a successful investment strategy. This is a subject that I will return to frequently before 6th April 2016.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Pensions – more needless headaches the Lifetime Allowance2017-01-06T14:39:22+00:00

70 is the new 60…. well for the State Pension

70 is the new 60….for the State Pension

One wonders what we are doing to future generations. Today I read an article suggesting that the State pension age will inevitably become 70, all due to the fact that more people are living longer. The State pension age used to be 60 for women and 65 for men, this has undergone a period of “equalisation” and will be 65 for both men and women from 2018. As this ideological “hurdle” was achieved some time ago, successive Governments have simply made plans to extend the age at which a State pension is provided. The State pension age will be 66 by 2020 and 67 from 2028.

The reason is really two-fold, cost and longevity. The State pays pensions in various forms, the most obvious being the State pension, which now costs about £110bn a year. Disability pensions costs around £42.2bn and survivors pensions about £1.1bn, amounting to roughly £153.3bn which is about 20% of all Government spending and by far the largest component of Government spending. Details here (click).

Looking ahead

In essence anyone born since 1960 can expect to have to work longer. Given the increasing life expectancy and inherent problems with ageing, care costs are expected to soar, resulting in further dilemmas for Government about how to meet costs…. from a population that is having fewer children.

Episode IV – A New Hope

Consider those that graduated this summer and are just starting out on their careers, born in the early 1990’s they were only just teenagers when the credit crunch occurred the property boom had happened. If you understand my heading (refering to the very first Star Wars movie in 1977) this generation can be forgiven for thinking that the Star Wars films were made sequentially when episode I was actually released in 1999 – they were 7). Student loans are now part of their deductions each month, along with compulsory pensions. I don’t like to be a pessimist, but the generation just starting out have inherited the debts of previous Governments (currently interest payments are around £40bn a year), have little prospect of “getting on the property ladder” and an ageing population that received their State pension many years younger than they will. Any academic results they achieve are met with accusations of “easy exams” and employers seem almost eager to say “we cannot find good enough people”. Not even to mention the problems with the environment. I appreciate that you already know this.

The Breakfast Club

I am reminded of the 1985 film, “The Breakfast Club” written and directed by John Hughes, which recently celebrated its 30th anniversary. This was a group of teenagers held back in detention one Saturday morning and who eventually reveal the stories that brought them there. Vernon, the supervising teacher, representative of a now uncaring, disillusioned, bored older generation loathes the fact that he is also forced to spend his Saturday supervising misfits. He is caught by Carl, the caretaker, fishing through the personnel files hoping to find scandal that he can use against his peers. This results in a conversation between the two, in which he complains about the youth of today and ends with this dialogue.

VERNON: You think about this…when you get old, these kids; when I get old, they’re gonna be runnin’ the country.

CARL: Yeah?

VERNON: Now this is the thought that wakes me up in the middle of the night…That when I get older, these kids are gonna take care of me…

CARL: I wouldn’t count on it!

No… neither would I…. perhaps we all need to think rather more carefully about how we are planing not just our own future, but that of future generations… as Simple Minds remind in the closing title music – Don’t You Forget About Me. Perhaps there could be some redemption… even Darth Vader managed to salvage something with his own offspring.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

70 is the new 60…. well for the State Pension2017-01-06T14:39:24+00:00