The Value of Retirement Planning
We all know it’s important to plan for retirement, but many of us are still not planning well, or early enough.
Despite all the media headlines and Government initiatives, many of us still have a ‘tomorrow will do’ attitude. This is worrying for one simple reason – we are going to live longer than most of us think.
Those approaching retirement today have many more opportunities and challenges to face than their parents ever did. There are also many more ways to fund retirement, adding to the confusion about how to best prepare for all your needs.
In 1900, life expectancy at birth in the UK was only 46 years for men and 53 years for women. Just over a century later life expectancy at birth has increased by around 30 years. By 2014 it had reached 78.7 years for men and 82.6 years for women (source: Continuous Mortality Investigation Bureau).
Clearly, life expectancy is increasing, and the higher likelihood of us living longer into retirement presents an important question - will we have enough money to enjoy the lifestyle we desire and to last us, once we have stopped work?
Some of us are planning our pensions. But few of us plan for ‘late retirement’. This is a period from our mid-70s and onwards, when our expenses can rise faster than our pension income can keep up with.
This can happen for various reasons. It could be because we need more help around the home or even that we require nursing care. Then there are unexpected expenses like replacing the roof, health care, or financial help for our families.
But these days, it’s just as likely to be because the older generation is leading a more active life through travel, work or leisure.
And don’t forget our old enemy – inflation. It continually eats away at the value of our money over time.
This problem has been at the root of much of the recent innovation in the retirement market. Getting sound financial advice throughout the different stages of retirement will help identify which products can help you achieve the income you need.
Although it may seem a long way off, making robust financial plans now for late retirement will give you the peace of mind to enjoy your early retirement years - safe in the knowledge that you will be able to live the lifestyle you desire further down the line.
A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.
Points for consideration of Pension Transfers
There is much to consider regarding the real value of Final Salary or Defined Benefit (DB) pension schemes.
In recent years, pension transfer values for these types of plan have largely risen and some individuals have decided, with or without advice, to transfer their protected pension benefits to personal pension / SIPP arrangements from deferred or current employer schemes.
Policy Statement PS18/20 (October 2018 / Improving the quality of pension transfer advice) from the UK regulator, the Financial Conduct Authority (FCA), notes the following:
'While most consumers will be best advised to keep their DB pensions and other safeguarded benefits, we recognise that the pensions environment has changed. This is particularly the case since the pension freedoms gave consumers with Defined Contribution (DC) pensions more options to access their pension savings.
As a result, there has been an increased demand for pension transfer advice, as advice is mandatory under government legislation for potential transfers valued at more than £30,000.'
We hope that the information above is helpful.
Some individuals are attracted by what are perceived to be greater flexibilities in moving away from Final Salary type pension arrangements. However, this is usually at the expense of losing valuable guarantees, and each individual needs to consider many aspects of their personal circumstances before coming to a decision on the most appropriate course of action.
It is vital that individuals understand the underlying pension guarantees, in their various forms, before starting any process, advised or otherwise, of making changes to their employer sponsored pension plans.
There is a cost to pension advice / transfer advice, irrespective of the decisions made as to how future pension benefits will be treated, and this notice is designed to help individuals understand some of the implications before they seek advice and before they incur advice costs.
We are qualified to provide advice in this area and will charge to provide advice if we engage. To speak to an expert adviser please call us on 01494 451441 or email firstname.lastname@example.org