Articles about the run up to retirement

NS&I Pensioner Bonds

Her Majesty’s Treasury announced the new rates for the NS&I Pensioner Bonds last week. These look incredibly competitive for fixed interest rate cash deposits (bonds). These will be offered in the new year at some point in January. There will be a 1 year fixed rate of 2.80% and a 3 year rate of 4.00%. There is a maximum investment of £10,000 into each. You can have both (£20,000 in total). The interest will be added at each anniversary.

The World Is Not Enough… well £20,000 isn’t

When comparing Bond rates for cash against market equivalents, they are incredibly good – but clearly restricted to a maximum holding of £20,000 per person, I expect that there will be a high demand and as a result the offer could be withdrawn fairly quickly. Blink and you may miss it.

If you would like more information about this please consider the NS&I website. Remember that this is for cash balances that you can afford to lock away for 12-36 months. If you expect to have this money longer than that, then please consider proper investment advice as despite the fact that these rates are “good by comparison” they would be an unwise use of your money as a long-term investment plan (5 years or more). Cash is for your emergency safety net and planned expenses in the 0-48 month window.

Pensioner Bond

The “Pensioner Bond” is only available to those aged 65 or over… which if you are interested would enable 4 of the living 6 actors that played James Bond, 007 to apply.

Timothy Dalton (70); George Lazenby (75); Sean Connery (84), Roger Moore (87). The current James Bond Daniel Craig is 46 and his predecessor Pierce Brosnan is currently 61. The other Bond story is that the new 007 film “Spectre” is scheduled for release in November 2015.

Dominic Thomas

NS&I Pensioner BondsDominic2023-12-01T12:39:44+00:00

Annuities

An annuity is an income paid for life. Simple. Generally people buy an annuity with a pension fund, which for the vast majority of people is when they retire. The rules changed recently with George Osbourne’s Budget in the Spring, this meant that from 6th April 2015 nobody has to buy an annuity if they dont want to.

Why?

This is an acutaries field day, but let’s keep things simple. Annuity rates are closely linked to interest rates, investment returns and life expectantcy. Over the last 20 years interest rates have fallen considerably (as anyone can observe) so too has inflation and with that investment returns, though “real” (after inflation) returns have been fairly constant over the long term. People are also living longer (on average) – meaning that any income needs to be paid for longer. So actuaries do their sums and review their sums based on these factors.

As a result annuities have fallen from double-digit rates in the 1980’s and early 1990’s to very low and comparativley measly figures today. As a result people understandably look at the size of their pension pot and the projected annuity income and don’t like what they see. Hence pressure over the years to abolish the requirement to have an annuity, which is essentially a decision made once at 65 that cannot be altered and one you have to live with for life.

Regulatory Review

The current regulator (my fifth!) has recently published its findings about annuities and how they have been sold. Most of the report is nothing new, myself and other advisers have been calling for change for years. The main problem being that the vast majority of people do not think to consider the options at retirement properly. Far fewer still do any proper planning (working out how much income is needed, when and for how long etc). Most assume, rather strangley, that their existing pension company is simply offering them the “best deal” which is rarely the case… I’m reluctant to say “never the case” but I am tempted to do so. This is why people need to “shop around” but more sensible still – engage a financial planner to properly assess and explain your options. There can be enormous differences from simply getting a better deal, let alone the most suitable, which takes account of your needs, tax and so on.

Whilst the press have been covering Mr Osbourne’s pension freedoms, annuities certainly still have a place and are one of a number of “tools” to consider. For starters, of all the options, they are the only ones to provide guarantees. So if you know anyone that is in the process of retiring don’t let them get confused by the media noise, but encourage them to seek advice from a financial planner – like me.

Dominic Thomas

AnnuitiesDominic2023-12-01T12:39:43+00:00

Talking Money – Pension Freedom

Clients should now have recieved a hard copy of Talking Money. This issue provides a little more “flesh on the bone” about the new pension freedom that the Chancellor outlined in his Budget. There are many very positive aspects of the changes announced and some are already in action. However some caution is needed and I imagine that there are likely to be some adjustments to the final terms, which are likely to be announced in the Autumn statement next month.

One of the main issues is that despite this making “grown up pensions” and providing people with choice, this does also come with a plethora of options that need thoughtful and careful reflection. Whilst the Chancellor told us that everyone would have free advice at the point of retirement, this has already been reduced to”free guidance” and in practice that means going along to the Citizens Advice Bureau to speak to someone who will almost certainly provide a guide and then refer you to an independent financial adviser.

As you may know, I spend a fair bit of the year attending conferences and training sessions. This is part of my own continual professional development (CPD) but there’s no lip-servcie to this – its pretty vital. The rules for pensions have altered, scrap that, been revolutionised in a “landmark” year for pensions. However despite the appearance of simplicity, there is even more need for good advice and for those that end up opting for a flexible pension rather than an annuity would be wise to review this decision regularly (one of the advantages of making it) and give proper consideration to guaranteed alternatives.

There are about 7.7million employed workers between the ages of 50-64 in the UK according to ONS reports. Even if there were an even demographic spread, that suggests a tidal wave of over 500,000 people reaching 65 each year. There are not enough hours in the day or qualified advisers to currently facilitate this easily. So make sure that your friends and colleagues are aware of all the options, but above all working with someone that puts pensions in their right context – your income to suit your lifestyle.

Dominic Thomas

Talking Money – Pension FreedomDominic2023-12-01T12:39:36+00:00

Auto Enrolment – Defining the Worker

Auto enrolment – defining the worker

Financial Planning has not yet seen the day when pension schemes are compulsory, but that day is surely closer as auto-enrolment outlines some of the hurdles that employers must jump. As an IFA, my role is to help both employers and employees to make best use of pension arrangements.

The new auto-enrolment pension rules come into effect at the end of October. There are three categories of employee that must be automatically enrolled into a pension scheme by their employer. I draw your attention to use of the word “must” – which means must. The first and easiest group to identify are those that are eligible, this means aged between 22 and State retirement age, working in the UK and earning more than £7,475 a tax year. Note though that this sum will probably be revised (upwards) by the Government and is likely to be linked to national insurance levels or the personal allowance. The second category is what might be described as “keen savers” – employees that fall outside of the automatic criteria, earn between £5,035 and £7,475 but want to join the scheme and have a right to do so. Employers must make it easy for these people to opt in and must also contribute along the same lines. Finally a group that the Pensions Regulator call “Entitled Workers” who earn below £5,035 and don’t qualify for auto-enrolment. The employer doesn’t have to make payments and can offer a different pension scheme. Confused? well here’s a diagram from the regulators website.

Thoughts – the limits will be revised annually, so in reality employers have to keep an eye of eligibility rules. The easiest solution is to simply make the scheme available to all under the same terms, this should prevent breaching any rules.

Dominic Thomas: Solomons IFA

Auto Enrolment – Defining the WorkerDominic2017-01-06T14:40:08+00:00

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