Articles about the run up to retirement

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

Ten million don’t check pensions

Ten million don’t check pensions

Wow! according to research conducted by AVIVA (who used to be Norwich Union) about ten million people are not checking their pensions. That is staggering. For many people their pension will be their second largest asset, their home being the largest.

ICM research surveyed 1500 people online, who were 45+ but under retirement age. A staggering 63% did not bother to check their pensions. AVIVA have extrapolated data from their research and widely known information about pensions published by the Office of National Statistics (ONS). Their data suggests that there are about 8.1m active occupational pension scheme members and about 8.2m with active private pensions. Active doesn’t necessarily mean “paying into” – after all these are pensions that alter in value each year (or day) and ultimately have a maturity date. Breaking down the numbers (a precarious exercise) results in AVIVA concluding that about ten million people do not check the value of their pensions.

So what?

Even if the numbers are vaguely correct, there are probably a variety of reasons why people do not check their pensions. Frankly it could be as simple as they lost them or didn’t know they even had them (from former employers). It might be the constant name changing of pension companies due to all the mergers and acquistions that have occurred over the last 20 years. It may be that they realise that the pots are so small that to check them seems rather trivial. Equally it may be that because they are small, few wish to be reminded of the reality of the pension provision.

Not always the ostrich

It isn’t as simple as dismissing ten million people as little more than the proverbial ostrich. The reasons can be rather more complex. In any event, whilst the ostrich is known for its head-in-the-sand behaviour, it does have a rather large nest-egg and of course, whilst flightless, is a very fast and powerful runner, even being raced…

One problem is the simple number of pensions to keep track of . The research found to be the main reason why people consolidated pensions (of those that did). Consolidating pensions can make a lot of sense, but it needs to be done very carefully – some older style pensions have various guarantees which may be worth keeping. Some may have very high penalties for transferring them to a different pension.

Making the best of things

Whatever the reason, being prepared for retirement and knowing what you are aiming for is important to us all…. ask any pensioner! As a financial planner, I work with what you have built up and then we figure out together what you need and how to best get there. May I urge you, if you are not a client to begin by downloading my free guide to regaining control of your pension. If you are a client, please share this information. Drifing into retirement will result in serious disappointment.

 

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

Ten million don’t check pensions2017-01-06T14:39:25+00:00

Lost your pension?

Lost your pension?

Many people have lost track with old pensions, frankly it is hardly surprising given the number of name changes, mergers and acquisitions of various pension companies over the last 40 years or so.  Perhaps you have lost your pension too.

Consider the various jobs that you have had over the years, however small, perhaps there is an old pension lurking somewhere in the midst of your curriculum vitae.

Pension evolution…. perhaps revolution

Pensions have improved dramatically over the years and almost unrecognisable from those I first understood over 20 years ago. The evolution continues and something that adviser firms like ourselves spend a lot of time researching and reviewing. Cheap is not always best, but then neither is the most expensive.

The media, consumer groups and various politicians have regularly made statements about the charges on pensions, some of which are accurate, some are not. However, I imagine you would like to know if your old style pension could be brought up to date.

Find your lost pension

The Pension Tracing Service (PTS) was set up to help find lost pensions. In essence everyone has a National Insurance number that is unique to them, this is the main tool used to search for lost old pensions. It is believed that there could around 50million dormant or lost pensions “in the system” by 2050 due to the growing number of small pensions (due to auto enrolment, or workplace pensions).

Once lost, now found

Last year the PTS was contacted over 145,000 times and we expect this to increase considerably. They aren’t always successful in tracing pensions, but last year managed to trace 87% of those believed to exist.

Regain control of your pension

So it would be advisable to check if you have any lost pensions and then check them (and any old pensions that you haven’t lost) to determine if they can be improved. I have put a free guide together about this, which I have called “Regaining Control of Your Pension”. You can download it for free (tell your friends and colleagues) simply by completing the online request below this item.

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

Lost your pension?2017-01-06T14:39:26+00:00

Pensions: Annuities starting to improve?

Annuities starting to improve?

We appear to have witnessed a small upturn in annuity rates. In June the best open market annuity for a male aged 65, with £100,000 seeking a single life, level income with a 5 year guarantee rose to 5.35% or £5,350 in April and May the rate was 5.09%…. technically a modest increase of £260 a year in this example, but equivalent to an increase of 5.1% (Ok it is starting from a very low point).

Why?

Well, gilt yields have increased modestly too, these essentially drive annuity rates, along with mortality rates (as well as other health and geographic factors). The 15 year gilt yield bottomed at 1.76% in February this year, but has slowing started to increase. All this suggests a possible interest rate rise is probably coming.

Back in the day…

I wonder what your feelings are to this news. In October 1990 the same £100,000 for a 65-year-old male, also buying a single-life level annuity with a 5 year guarantee would have received an annuity rate of 15.64% or £15,640 a year (nearly three times as much). At the time the 15 year gilt yield was 11.74%. Gilt yields have historically always been less than annuity rates, tracking a very similar path but 2-3% less.

Of course to buy an annuity in October 1990 you would be born in 1925, the year Clara Bow starred in “The Plastic Age” and you would now be 89. Most men born in 1925 do not live to 89, (and some may have fought in WW2… just, being 20 when it ended) but for those that have survived until 2015 the average man would live another 4.32 years according to the ONS. Some will obviously live longer, some less (hence it being an average figure). If you are lucky enough to have a 15.64% annuity rate that started in October 1990 you would have already had £400,384 by the end of June 2015 from your £100,000. Living until the average 93.3 would provide a total income of £458,252… which really isn’t too bad is it.

What about inflation?

Since 1990 until the end of last year (2014) the average rate of RPI was 3.1%. As a result anyone with a level annuity has seen the effective value reduce by 3.1% a year (assuming that you believe the RPI data and buy the same goods and services – which is a significant point).  Of course £15,640 today is £15,640, but if we back date this to 1990, its worth the equivalent of £32,746, in other words a little more than twice as much…. or to put it another way £15,640 is worth about half what it was worth in the space of about 25 years.

Planning your retirement income

If only life were as simple as buying the best deals. In practice planning your retirement income is a fairly involved task, there are lots of choices – loads in fact. How much income you need and your thoughts about inflation are part of the discussion. The new pension freedoms make this a more valuable discussion than simply having to buy an income and living with the consequences, the downside is that greater choice, brings greater complexity and possibility.

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: Annuities starting to improve?2017-01-27T11:09:55+00:00

Pensions: Lifetime Allowance and Mad Max

Solomons-financial-advisor-wimbledon-bloggerPensions: Lifetime Allowance and Mad Max

You have probably heard of Mad Max – its latest incarnation is currently in UK cinemas. You may have heard about the Lifetime Allowance – which has been part of the pension vocabulary since 2006 or “A-Day”. Suffice to say that I believe that the Lifetime Allowance is rather mad.

In the event that you are a politician and reading this, may I ask why you think pensions are important? To my mind, pensions should be encouraged. The end result of a pension should be that people living in the UK are able to provide for themselves above the State Pension, so support their lifestyle. This has several obvious benefits – creating financially independent adults, not requiring State support. Having income means that income tax can be levied and collected to help pay for our society. Let’s also not forget that income is there for using (spending) which enables trade to occur and wealth to be created and so on.

A World of Plenty?

It would seem that politicians generally think not having a rising burden on the State is a good thing. Indeed encouraging pensions with tax relief is the “sweetener” or “bait”. Much like the film Mad Max, we probably don’t want to create a society reliant upon the occassional benevolence of the prevailing “Lord”. Surely we would like a society where all prosper? OK we know the UK has limited resources, so adjust the tax relief, but don’t make it hard or even pointless to save. Even the current regime isn’t tempting enough for millions of people that don’t or cannot save for their future.

Mad Max

Scarcity

At present pension contributions are restricted, which seems fair enough, but the amount that the pension pot grows to is also restricted by the Lifetime Allowance. This is currently £1.25million, which sounds like a reasonable sum, but in practice isn’t as much as you’d like to think, given that it has to last for the remainder of your life. The Lifetime Allowance has already reduced over the years from £1.8m and if the Chancellor does what he suggested he would in the last Budget, it is likely to shrink to £1.0m next April. In other words £250,000 of the Lifetime Allowance will be lost – or more accurately invoke a tax penalty of £137,500.

Mad Max and Excess Tax

If the Lifetime Allowance is exceeded, there is a tax charge of 55% on the excess. OK there are some ways that you can protect your higher pre-legislation allowance, but these are designed by bureacrats and “problematic” to say the least. Essentially this excess tax charge punishes those that save or get good investment results….  let’s not forget that the income from pensions is subject to income tax anyway. So I fail to understand why we don’t simply abolish the Lifetime Allowance and all the protections that have surrounded it. Your pension fund should be just that – a pot that you can actually use with confidence.

Mad Max – Fury Road is currently in UK cinemas, starring Charlize Theron, Tom Hardy and Nicholas Hoult. The Chancellor, George Osborne has his next Budget on 8th July 2015…

Dominic Thomas

Pensions: Lifetime Allowance and Mad Max2017-01-06T14:39:28+00:00

Pensions: Taking Your Pension? Beware of Tax

Solomons-financial-advisor-wimbledon-bloggerTaking Your Pension? Beware of Tax

When the Chancellor announced the abolition of the requirement for most people to buy an annuity with their pension fund, it was somewhat unexpected. Arguably it was one of the most radical shake ups to pensions in decades. However as time progresses, the wisdom of allowing people to do whatever they want with their own money is experiencing some problems. If you are taking your pension, you need to beware of tax.

Tax

The main advantage of pensions is tax relief. At the moment (who knows if things will change in the Chancellors budget next month). Currently most investors will receive tax releif of 20% higher rate taxpayers get 40% – though the difference has to be claimed via self-assessment tax returns, not granted automatically.

Money in a pension has tax advantages

Whilst invested as a pension, the funds are free from income tax and capital gains tax – which means that they grow faster (free from tax). If you take money from a pension, (possible from age 55) 25% of the fund is tax free and the balance when taken as income (regular, ad hoc or all at once) is taxed at your highest rate of income tax. On death the new rules mean the pension fund can pass to the estate without inheritance tax.

Taking money doesn’t have to be taxing

howtomarryamillionaireposter

It would appear that due presumably to a belief that pensions are “bad” some people have been rushing to withdraw their pension in entirety, which of course results in a signficant income tax bill and the realisation that once its gone… well, it’s gone. The media initially joked about people buying a Lamborghini and the prospect of access to wealth attracting the wrong sort of attention.  For those that don’t spend the money all at once it means that they seek other ways to use the money to generate income to support a lifestyle…. which means investing it. See my earlier post about this.

Most alternatives are subject to tax

Investments are subject to income tax, inheritance tax and capital gains tax…. with a few exceptions such as ISAs – but with limits on the amount that can be invested each tax year. Other tax favourable investments tend to be much more “entrepreneurial” in flavour – EIS, SEIS, VCT for example, most of which carry significantly higher risk due to a small focus on shares in a single company or a very small number of companies.

So be careful – get advice, there is much to consider. Pensions aren’t “bad” in fact they can be really rather good if set up properly. The issue is really to ensure that your pension (which is just a term for income in retirement) suits your planned lifestyle….

Dominic Thomas

Pensions: Taking Your Pension? Beware of Tax2017-01-06T14:39:28+00:00

Pensions: New Freedoms

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Pensions Freedom

Have you heard about pensions freedom? Are you approaching retirement and thinking that this is excellent news, you can have your entire pension? Well you are right, but as ever there is a catch. You are free to self-destruct, it is your right to do so (and I’m not being patronising).

On the one hand freedom is good right? but with it comes responsibility (why do I sound like a Spiderman scriptwriter). By responsibility I mean, once you spend it, whether thats taking it as a lump sum or buyng an annuity or leaving it as a Flexible Access Drawdown pension, once it has gone – that’s it. Nothing left… except any other pension income you may have such as the State pension.v_for_vendetta

So this is all about knowing what you have and what you need. Something that no British Government has ever managed to get right for themselves, yet here we are, with new freedoms. So you have to figure out how long you will live to work out how much you can afford to take out each year. Actually rather more than that, you have to predict future inflation rates, mortality rates, investment returns and tax rates…. to name a few “elements”. Of course you could get a financial planner like me to help by doing some cashflow modelling and explaining the options and reviewing progress regularly or you could do it yourself.

Today I learned about a term called the IKEA effect. This is when we place a disproportianately high value on something that has been partially made us. Go on look it up. This is precisely what happens to DIY investors… that portfolio I built, its not bad. Actually the truth is rather different. I mean no disprect to IKEA or DIY investors. This is about a price-point in the market – what you can afford. Arguably you will have to live with both (furniture and your DIY portfolio) but your portfolio has to last your lifetime. I’m all for consumer empowerment and the removal of elist jargon and ivory towers, but information is not the same as experience or indeed knowledge. I wonder if you remember the John West tinned fish TV adverts? its the fish that John West rejects that make them the best. In other words, selection, some might call it curation – is vital.

Building the right portfolio to last for life is a fairly daunting challenge, for a few this isn’t going to be much of a problem, but for the vast majority of people it will be. Most people do not pay attention to the holdings in their ISAs or pensions. Most are in the funds or more likely single fund, that the adviser put them in when they started their pension. Little attention has been paid to assessing the level of contributions needed, frankly its more like lucky dip… and who can blame them! the jargon is a huge barrier, statements are fairly unclear and the rules keep changing, little wonder people don’t spend much time looking after one of their largest assets. Yet suddenly at the point of retirement, they are expecting to become investment experts. Whilst the Government may say that people should be trusted with their own money, thats fine if it relates to the straight-forward stuff of running a budget and basic banking, but when it comes to understanding asset allocation, volatility, sequencing risk, safe withdrawal rates, reductions in yield… well frankly its taxing even for the experts. Your pension is not a shelving unit from IKEA, its more like fitting a pace-maker, one that has to keep you going.

My advice is to get advice – don’t get sucked into short-term thinking and getting some degree of satisfaction from raiding your pension to show your displeasure with the pension company.  Certainly there are better pensions, but you really need to get sensible advice to explore your options properly. You wouldn’t build a house without architectural plans (I hope)… the same is true when it comes to designing a portfolio for life.

Dominic

Pensions: New Freedoms2017-01-06T14:39:28+00:00

Retiring Doctors and GPs?

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Retiring Doctors and GPs?

Lately I have found myself between a rock and a hard place when advising my medical clients. Through no fault of their own, many long-serving Consultants are being punished due to poorly thought through rules about the Lifetime Allowance and Annual Allowance. Whilst on the one hand they are “lucky” to have large pension funds, that are by comparison “brilliant” the fault of successive Governments to fail to do their sums is hardly their fault. Indeed if ever there was an appropriate use of the term “moving the goalposts” it is surely fitting for what has happened to public sector pensions, particularly the NHS Pension Scheme, which was revised in 2008 and has now morphed into the 2015 Scheme (from the start of this month).

The changes have meant that members have to guess when they might best retire… in some specialities that is “a challenge”, most have to pay more, work longer and accrue less, whilst, (if reports are to be believed) having to cope with a greater workload, politically motivated “targets” and an under resourced organisation.

As a result of blown 2012 Fixed Protection and further reductions to the Lifetime Allowance, many of those that I work with are somewhat fed up with the powerlessness that they feel in relation to their pension rights. I cannot speak of widespread disatisfaction, but certainly those that I know within the medical community (quite a number) are “cheesed off”. The way benefits are calculated are ludicrously complicated and often mean that extra taxes are payable – through no fault of the doctor – simply by being in the scheme and having an increase in pay which is out of sync with the defined limits. I’m not talking small taxes here – but excess amounts that are deemed to have been paid as income, even though this is not the case in reality (it isn’t paid as income)…

According to the BMA, a poll of over 15,000 GP’s indicated that 34% of them expected to retire within the next 5 years. Statistics out of context can be used to support any argument, so a headline such as this one needs some unpicking.HSCIS report2015

According to the GMC, there are about 60,000 licensed doctors on the GP Register for the whole of the UK. The GP register has been around since 2006 and requires that all practicing GPs keep their license and records up to date. This figure is for the whole of the UK and does include some possible double-counting as some specialists are GPs and vice versa. In England there are 40,584 GPs and according to data published last month by the Health and Social Care Information Centre (HSCIC), for the first time there are now more practicing female GPs (20,435) than male GPs (19,801). In any event, a suvery of 15,000 is therefore a survey of about 37% of the entire workforce by headcount… which is a significant survey, one might say a very solid survey, certainly when considered as a percentage of the relevant population – unlike the current political polls or those TV adverts for women’s products that claim high rates of satisfaction (so small that it is questionable if the people conducting the survey actually left their office building)… so this survey, unlike some, is rather “worth it”. Of course, not all GPs work full-time, the figures are a headcount, not a precise allocation of full-time GPs, the full-time equivalent number of GPs is 36,920. If trainees and retainers are excluded, then the full-time equivalent is 32,628.

By way of “hard facts” here are some NHS statistics to consider, I have taken these from the HSCIC report, which frankly could make the statistics much clearer… anyway…

1,387,692 Total NHS workforce (1,187,606 FTE)

of which

701,872 are professionally qualified clinical staff (623,050 FTE)… 50.5%

42,733 Consultants (40,443 FTE)…. 3.0% of NHS staff

55,079 Hospital Doctors (53,786 FTE)…. 3.9% of NHS staff

37,078 Managers (35,164 FTE)….2.6%

36,920 General Practitioners (32,628 FTE)… 2.6%

377,191 Nurses, including GP nurses (328,577 FTE)….27.1%

The problems of staffing within GP surgeries looks set to continue and frankly, if politicians contrinue to play havoc with the pensions (Lifetime Allowance and Annual Allowance nonsense) of doctors and nurses, they may well also be considering earlier retirement. Future PM, you have been warned…

Dominic Thomas

Retiring Doctors and GPs?2017-01-06T14:39:29+00:00

Pension Timebomb

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Pension Timebomb

Ok its April 1st, but this isn’t an April Fools Day joke…. this is data from the Policy Exchange, founded in 2002 to help contribute the national thinking about society. I don’t know if it is the case, but it would appear that the Coalition Government had a look at this before deciding to introduce the pension rules that come into effect next week. However if you are someone still saving for a pension or an employer, the findings are not great reading, with both needng to contribute rather more to pensions. Clicking on the graphic should make it larger.

Help to Save: Defusing the pensions time bomb

Dominic Thomas
Pension Timebomb2017-01-06T14:39:29+00:00

Pension Freedoms and a Lamborghini

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Pension Freedoms and  a Lamborghini

I’m sure you will have come across newspaper reports that some people are concerned that the new pension freedoms, (which come into effect from 6th April 2015) are likely to mean that some people make some daft decisions about their pension pot. You have probably heard that some may go a little mad and buy a Lamborghini.

This is an issue that I have talked about with clients recently, not because they were thinking of buying a Lamborghini, but I simply wanted to explain what the nw pension rules really mean. Admittedly as I don’t own a Lamborghini I’m not that familar with their prices. I’m not an avid Top Gear fan, though I do like Grand Prix. So just by way of a guide, perhaps you may like to know the reality of using a pension to buy a Lamborghini.

Dream Car? Aventador LP 700-4lamborghini

Making the wild assumption that you would want  a brand new car, the cheapest model I can find available in the UK is the Aventador LP 700-4 which starts at £260,040 (I love the £40!). I’m sure the reduction in petrol prices will help, but I imagine that this is a car that with a top speed of 217mph  and a combined urban/extra urban fuel consumption of 16 miles per gallon is also going to be expensive to run, let alone service.

On the Road Price

Assuming that this is an “on-the-road” price you need to write a cheque for £260,040 to the dealer from your pension. As of today a pension isn’t a bank account and does not come with a cheque book. But from April 6th you will be able take all of the money out (if you are 55 or older). The new rules allow you to take all your money out should you wish to – you don’t have to buy an annuity. However the original rules still apply, in that you can take 25% of the fund as tax free cash, the balance is deemed as income and taxed at your marginal rate of income tax (as it would be if it were an annuity). So, to buy the Aventador LP700-4 you need to pay £260,040, there are two ways that you could now achieve this.

1. Use the tax free cash – you could have a pension pot worth £1,040,160 and be able to take out 25% as tax free cash (£260,040).

2. Use the entire pension pot.You need a pension of tax free or have a pension pot worth at least £393,000. This would mean that you could take £98,250 as tax free cash and £294,750 as income (but suffer 45% income tax) leaving a net income of £162,112.50 and so have £260,362.50 to hand over the the Lamborghini dealer. Ok not all your income will be taxed at 45% – just the income over £150,000.. but most will be taxed at at least 40%, some at 20%, you would forfeit your personal allowance and in so doing pay an effective rate of tax of 60% on part of the income.

Too Fast, Too Furious… for mosttoo fast

It would take someone with either considerable additional resources, or perhaps a very short life expectancy to decide to buy the car with their pension… essentially costing £393,000 rather than £260,040. It may surprise you and probably alarm you to learn that the average pension pot “at retirement” is about £30,000, so for most people, they are more likely to be able to buy a model Lamborghini car which will cost between £6 and £3,654 (according to the site) or perhaps you fancy a T-shirt starting at £43.

Given that your pension, in combination with your other resources is meant to last for the rest of your life, the key is to ensure that it doesn’t run out before you do. This is precisely what we do for our clients, figure out what income you need to support your lifestyle, how much is needed, what returns required and making some assumptions (which we review together) about inflation (currently 0% here in the UK) and life expectancy. When it comes to avoiding living on the street, you really dont want a pension withdrawal strategy that is too fast and too furious.

Dominic Thomas

Pension Freedoms and a Lamborghini2017-01-06T14:39:29+00:00