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INHERITANCE TAX RECEIPTS REACH £6.1BN What if I could make my wealth more tax-e!icient? CASH MAY NOT BE KING Deciding whether to withdraw cash from your pension pot NAVIGATING THE HIGHER!RATE TAX FREEZE Minimising the impact on your personal "inances COST#OF#LIVING CRISIS DELAYS HOMEOWNERSHIP, HAVING CHILDREN AND RETIREMENT SEPTEMBER/OCTOBER 2022 PUTTING LIFE ON HOLD Welcome to our latest edition. Rising living costs have been so signi!icant in recent months that most UK households will have noticed a squeeze on their monthly budgets. Not only does this have a direct impact on people’s lifestyles, even though they are making every e!fort to cut back, but it has a knock- on e!fect on their lifelong goals such as owning a home or retiring comfortably. On page 07 new research highlights millions of people across the UK fear that the long-term impact of today’s rising living costs could see their life goals delayed or even missed altogether. Inheritance Tax receipts totalled £6.1 billion in the 2021/2022 tax year, up £729 million on the year prior. This 14% increase marks the largest single-year rise in Inheritance Tax receipts since the 2015/2016 tax year. The increase is the result of the ongoing freeze on the nil-rate Inheritance Tax band and residence nil-rate Inheritance Tax band has had. On page 05 we look at why making plans for Inheritance Tax is so important. Choosing what to do with your pension is a big decision. On page 08 we explain how by making the wrong decision it could cost you heavily in the form of an unwanted tax bill, eventually running out of money in retirement and even a tax credits and bene!its overpayment. So before you do anything, take a look at what you should consider. If you’re a higher-rate taxpayer, the freeze on the Income Tax threshold will have meant an increase in your tax bill. The reason for the increase stems from the chancellor’s decision in April 2021 to freeze the higher-rate tax threshold rather than increase it in line with in!lation. With in!lation running at a 40-year high, pay increases will mean more people are being pushed into the higher-rate tax bracket. Read the article on page 34. A full list of the articles featured in this issue appears opposite. INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE. THE VALUE OF INVESTMENTS MAY GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED. INSIDE THIS ISSUE SEPTEMBER /OC TOBER 2022 The content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results. The Financial Conduct Authority does not regulate tax advice, estate planning, or Will writing. CONTENTS 04 SELF!EMPLOYED EXTREMELY VULNERABLE TO LOSS OF INCOME 81% aren’t seeking !inancial advice 05 INHERITANCE TAX RECEIPTS REACH £6.1BN What if I could make my wealth more tax-e"icient? 06 GREAT WEALTH TRANSFER Preparing both ‘the family’ and ‘the money’ for the transition of wealth to the next generation 07 PUTTING LIFE ON HOLD Cost-of-living crisis delays homeownership, having children and retirement 08 CASH MAY NOT BE KING Deciding whether to withdraw cash from your pension pot 10 ARE YOU SAVING ENOUGH FOR RETIREMENT? One in six over-55s have no pension savings yet 11 BRINGING PENSIONS TOGETHER What to consider if you have multiple pension pots 12 HOW TO PROTECT YOU AND YOUR FAMILY’S FUTURE What kind of protection insurance do you need? 14 BRIDGING THE GENDER PENSIONS GAP Women left with half the pension pot, no matter the job READY TO TALK ABOUT YOUR FUTURE PLANS? Only by recognising and meeting your distinct requirements can we have a positive impact on your life and business. This is why we provide an extensive range of services, plus the ability to tailor solutions based on your speci!ic needs. If you would like to discuss your concerns or requirements, please contact us. We hope you enjoy reading this issue. CONTENTS 16 UNRETIREMENT More over-50s returning to work amid cost-of- living crisis 17 COST!OF!LIVING CRISIS Britons cutting back on food and entertainment to keep cars on the road 18 FUNDING THE LIFESTYLE YOU WANT Get your retirement plans in motion 20 IT’S GOOD TO TALK More young adults are more engaged about money with their parents than past generations 21 A HEALTHIER APPROACH TO RETIREMENT WEALTH Pension schemes have a critical role to play in the transition to a net zero economy 22 HEALTH, WEALTH AND HAPPINESS OF A NATION Overall wellbeing still not close to being back to levels seen pre-COVID 23 TEN TIPS FOR FIRST!TIME INVESTORS Ready to get started on your investment journey? 24 WHEN SHOULD I STOP WORKING? How to tell whether you’re ready to retire 26 NEVER TOO EARLY TO PLAN AHEAD Pension savers struggling to save enough for their later years 27 BANK OF GRANDMA AND GRANDAD Older generation using the wealth held in their property to help younger generations 28 MIND THE RETIREMENT GAP 4 out of 5 workers not saving at levels which are likely to deliver an acceptable standard of living in old age 29 REEVALUATING THE ROLE OF WORK Preparing your !inances for a career break 30 LATER!LIFE AND FINANCIAL WELLBEING More than one-million over-60’s are rethinking later life plans 32 PENSION BOOSTER Mistakes to avoid when you’re aiming to build your pot 34 NAVIGATING THE HIGHER!RATE TAX FREEZE Minimising the impact on your personal !inances Being self-employed also means you don’t have the luxury of having an employer to rely on for sickness cover or health insurance, which can make you extremely vulnerable to loss of income or unexpected !inancial shocks. WITHOUT A REGULAR INCOME So if you’re self-employed, it’s essential you’re prepared for anything by having the right protection in place. According to new research, over half (57%) of self-employed workers in the UK rely on personal savings when they are not working, yet a worrying 81% aren’t seeking !inancial advice[1]. Being self-employed can o#er numerous bene!its, such as !lexible hours and the opportunity to work with a wide range of people, but self-employed workers can also face !inancial vulnerability. Over two-thirds (64%) of those who are self-employed in the UK revealed they are without a regular income, with just one in !ive (23%) receiving a monthly pay packet. OWNING A BUSINESS The research also found that almost half (48%) of self-employed people see their income !luctuate as a result of owning their own business, with a similar proportion (49%) putting this down to being a freelancer, contractor or consultant. As the cost of living rises and private rents in the UK increase at the fastest rate in !ive years, a quarter (24%) of those surveyed said they only had enough money to cover such costs for three months if they were unable to work. VULNERABILITY TO FINANCIAL SHOCKS With the research highlighting the group’s vulnerability to !inancial shocks and the importance of expert !inancial advice, one in three (31%) of those surveyed don’t think they can a#ord professional advice, while one-quarter (24%) say they hadn’t thought about seeking professional !inancial advice. Not being eligible for Statutory Sick Pay (SSP) can prove a real problem for the self-employed and their !inancial resilience – during the pandemic, a !ifth (21%) of all applications to the Test and Trace Support Payment scheme were from this group, according to a Freedom of Information request by The Community Union. SECURE FINANCIAL PROTECTION And while many have taken steps to secure !inancial protection for themselves and their families, 13% of self-employed workers in the UK still don’t have critical illness cover or life insurance. Of these respondents, just under a third (31%) said these forms of protection aren’t a !inancial priority, one in four (25%) said they were prepared to risk not being covered, while a similar amount said they didn’t require these policies (27%) or couldn’t a#ord them (24%). Source data: [1] The research was carried out online by Opinium Research across a total of 2,002 UK adults (Booster sample of 502 self-employed workers and 1,015 Renters). Fieldwork was carried out between 21!27 October 2021. 81% AREN’T SEEKING FINANCIAL ADVICE Self-employed people are at risk of "inancial hardship if they don’t have su"icient provision in place. Without a regular income, it can be di"icult to cover expenses and also save for the future. In many cases, the self-employed are unable to claim for many of the bene!its that employees are entitled to, including statutory sick pay. HOW CAN I PROTECT MY INCOME WHEN I’M SELF EMPLOYED? When you’re self-employed or a contractor, you get the perk of being your own boss, but you wave goodbye to traditional employee bene!its like company sick pay. Getting income protection is one step you could take to provide a !inancial safety net if you’re unable to work because of illness or injury. To !ind out more, get in touch. SELF$EMPLOYED EXTREMELY VULNERABLE TO LOSS OF INCOME 04 FINANCIAL PLANNING WHAT IF I COULD MAKE MY WEALTH MORE TAX$EFFICIENT? We all want to leave a legacy and make sure the ones we care about most are well taken care of when we’re gone. That’s why making plans for Inheritance Tax is so important, to have con!idence that your children, grandchildren and those you hold dearest will be taken care of long into the future. Inheritance Tax is a tax on the estate of someone who has passed away. The standard Inheritance Tax rate is 40% in the current 2022/23 tax year. Your estate consists of everything you own. This includes savings, investments, property, life insurance payouts (not written in an appropriate trust) and personal possessions. Your debts and liabilities are then subtracted from the total value of your assets. PASSING ON YOUR MAIN RESIDENCE TO DIRECT RELATIVES Every person in the UK currently has an Inheritance Tax allowance of £325,000 (frozen until April 2026). This is known as the nil-rate band (NRB). In 2017, an extra allowance was introduced to make it easier to pass on your main residence to direct relatives (i.e. a child or grandchild) without incurring Inheritance Tax. This allowance is currently £175,000, known as the residence nil-rate band (RNRB), and is on top of the standard nil-rate band of £325,000. A tapered withdrawal applies to the RNRB when the overall value of an estate exceeds £2 million. The withdrawal rate is £1 for every £2 over the £2 million threshold. ALLOWED TO USE BOTH TAX!FREE ALLOWANCES If you are married or in a registered civil partnership, you are allowed to pass on your assets to your partner Inheritance Tax-free in most cases. The surviving partner is then allowed to use both tax-free allowances. Provided the !irst person to pass away leaves all of their assets to their surviving spouse, the surviving spouse will have an Inheritance Tax allowance of £650,000 (£1 million if they are eligible for the RNRB). According to recent !igures released by HM Revenue & Customs (HMRC), more estates in the UK are now paying Inheritance Tax than ever before[1]. PAYING INHERITANCE TAX UNEXPECTEDLY Inheritance Tax receipts totalled £6.1 billion in the 2021/2022 tax year, up £729 million on the year prior. This 14% increase marks the largest single-year rise in Inheritance Tax receipts since the 2015/2016 tax year. The increase is the result of the ongoing freeze on the nil-rate Inheritance Tax band and residence nil-rate Inheritance Tax band. Many more families are !inding the total value of their estate – driven by a rapid growth in house prices, savings and other assets – is likely to be above £1million at the point of death, meaning many more estates could end up having to pay Inheritance Tax unexpectedly. START CONVERSATIONS WITH YOUR LOVED ONES In the 2019/20 tax year, there were 23,000 such deaths, up 4% on the year prior[1]. Given this data only covers to the start of the pandemic, this number is likely to have risen considerably over the past couple of years as asset prices grew. With many more estates likely to be subject to an Inheritance Tax bill, it remains important that you have a conversation with your loved ones sooner rather than later so that you all fully understand your estate, the value of it and the potential to pay an Inheritance Tax bill. SAVE YOUR FAMILY THOUSANDS OF POUNDS When discussing your Will and any potential Inheritance Tax liability, there are things that can be put into place to mitigate or reduce a future payment. That’s why planning for Inheritance Tax is a fundamental part of !inancial planning. It could potentially save your family thousands of pounds in Inheritance Tax payments when you die and ensure that your wealth is preserved for future generations. Source data: [1] https://www.gov.uk/government/statistics/ inheritance-tax-statistics-commentary/inheritance- tax-statistics-commentary THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION AND TRUST ADVICE AND WILL WRITING. TRUSTS ARE A HIGHLY COMPLEX AREA OF FINANCIAL PLANNING. INFORMATION PROVIDED AND ANY OPINIONS EXPRESSED ARE FOR GENERAL GUIDANCE ONLY AND NOT PERSONAL TO YOUR CIRCUMSTANCES, NOR ARE INTENDED TO PROVIDE SPECIFIC ADVICE. TAX LAWS ARE SUBJECT TO CHANGE AND TAXATION WILL VARY DEPENDING ON INDIVIDUAL CIRCUMSTANCES. WHAT WILL YOUR LEGACY LOOK LIKE? We understand every situation is unique. We’ll help you to identify any speci!ic issues and recommend the changes needed to help you meet your long-term wealth protection goals in the most tax-e"icient manner. To !ind out more, please speak to us. INHERITANCE TAX RECEIPTS REACH £6.1BN INHERITANCE TAX 05 PREPARING BOTH ‘THE FAMILY’ AND ‘THE MONEY’ FOR THE TRANSITION OF WEALTH TO THE NEXT GENERATION If you want to pass wealth on to your children and grandchildren, it’s wise to contemplate when it might be best to make that gift. Should you transfer wealth during your lifetime—or after? Some people may !ind compelling reasons to avoid giving away wealth during their lives. They think that transferring substantial portions could mean they might not have enough to maintain their lifestyles; their bene!iciaries might not use the wealth wisely, or at least in a way they’d want it used; and wealth might end up outside the family because of a child’s divorce or other misfortune. SENSITIVE TOPIC Understandably, money can be a sensitive topic even among the closest of families. But you will have a better chance of passing on assets tax- e"iciently in a way which is acceptable to all family members if you discuss and plan how to do this. There are a number of considerations to take into account when deciding when the best time is to transfer wealth to your family. These include your age, the age of your bene!iciaries, the value of your estate, the types of assets involved, tax implications and your personal circumstances. NEXT GENERATION Transfers made during your lifetime may be subject to Inheritance Tax, depending on the value of the assets involved. Gifts made more than seven years before your death are usually exempt from Inheritance Tax. Also the value of assets can change over time, so it’s important to consider this when making a transfer. For example, property values can go up or down, and investments can become more or less valuable. Your personal circumstances will also play a role in deciding when to make a transfer. For example, if you need access to the money yourself, then it may not be the right time to transfer wealth to your family. Alternatively, if you’re looking to pass on your business to the next generation, then you’ll need to consider when is the best time for them to take over. Here are four important considerations that should be a part of any family wealth transfer plan: Age: One key factor to consider is your age. If you are younger, you may have more time to accumulate assets and grow your estate. However, if you are older, you may want to consider transferring wealth sooner rather than later in order to maximise the amount that can be passed on to your bene!iciaries. Age of Bene"iciaries: Another key consideration is the age of your bene!iciaries. If they are young, they may not need the money immediately and it can be used to help them further their education or buy a property. However, if they are older, they may need the money to support themselves in retirement. Value of Estate: The value of your estate is another important factor to consider. If your estate is large, you may want to consider transferring wealth sooner rather than later in order to minimise Inheritance Tax liabilities. However, if your estate is small, you may not need to worry about Inheritance Tax and can a#ord to wait until later in life to transfer wealth. Types of Assets: The types of assets involved in the transfer of wealth are also important to consider. If the assets are liquid (such as cash or investments), they can be transferred immediately. However, if the assets are illiquid (such as property), it may take longer to transfer them. ADHERING TO THE FAMILY’S VALUES AND VISION Taking all of these factors into account will help you decide when the best time is for you to transfer wealth to your family, but it’s important to discuss wealth transfer with them sooner rather than later to maximise your options. Families must overcome many hurdles to ensure their wealth is protected and continues to accumulate over the generations while still adhering to the family’s values and vision. THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION AND TRUST ADVICE AND WILL WRITING. TRUSTS ARE A HIGHLY COMPLEX AREA OF FINANCIAL PLANNING. INFORMATION PROVIDED AND ANY OPINIONS EXPRESSED ARE FOR GENERAL GUIDANCE ONLY AND NOT PERSONAL TO YOUR CIRCUMSTANCES, NOR ARE INTENDED TO PROVIDE SPECIFIC ADVICE. TAX LAWS ARE SUBJECT TO CHANGE AND TAXATION WILL VARY DEPENDING ON INDIVIDUAL CIRCUMSTANCES. IS IT TIME WE HAD A TALK ABOUT FAMILY WEALTH TRANSFER? Transferring wealth to the next generation is an ongoing process – and it is extremely important to keep talking as a family. Making a decision about when to transfer wealth to your family is also a personal one. It’s important to seek professional advice to make sure that you’re making the best decision for your circumstances. To discuss your family wealth transfer plans, please contact us. GREAT WEALTH TRANSFER 06 INHERITANCE TAX COST$OF$LIVING CRISIS DELAYS HOMEOWNERSHIP, HAVING CHILDREN AND RETIREMENT Rising living costs have been so signi"icant in recent months that most UK households will have noticed a squeeze on their monthly budgets. Not only does this have a direct impact on people’s lifestyles, even though they are making every e#ort to cut back, but it has a knock-on e#ect on their lifelong goals such as owning a home or retiring comfortably. PUTTING LIFE ON HOLD Millions of people across the UK fear that the long-term impact of today’s rising living costs could see their life goals delayed or even missed altogether, according to new research[1]. Almost two-thirds (64%), the equivalent of 33 million people across the country, are concerned about the future due to the current state of their !inances. TACKLING RISING EXPENSES Households are tackling rising expenses by turning o# the heating (48%), reducing their grocery spend (37%) and even driving their vehicles less (24%). However, over half of UK adults (56%) feel they have already done everything they can to save money, while savings have also taken a hit. Nearly a third (30%) no longer have a ‘savings bu#er’ to cover unexpected costs. More than nine million potential homeowners – 48% of all people planning to purchase a home – now estimate they will need to delay this goal, with almost a !ifth (18%) of this group expecting it will need to be delayed by !ive years or more. WEDDING DREAMS DELAYED An additional 12% of prospective homeowners now don’t ever think they will own a home due to greater !inancial pressures. Dreams of getting married (7.2 million potential brides and grooms – 47%) and even parenthood (50% of those who plan to have a/another child – 6.8 million people) have also been delayed as a result. FUTURE FINANCIAL SUPPORT Parents who hoped to provide future !inancial support for their children are cutting back or scrapping their plans. Almost two in !ive (39%) people who planned to set a lump sum aside for their children now think they will have to delay this. Almost a !ifth (16%) do not see themselves ever being able to help out their children as a result, while 39% of people who had planned to give their children a deposit on their home now say they will delay this. Almost one in four of these parents (23%) say they will never be able to fund their children’s deposit. LONG!TERM GOALS Longer term, 45% of people who had dreams for retirement anticipate that they will have to put them on hold. This is the equivalent of over 11 million people across the UK and includes 38% of people in the crucial decade before retirement who expect to delay retirement by at least a year, if not more. More than one in ten (12%) of people think they are never likely to retire. Despite current challenges having such a fundamental impact on people’s long-term goals, half of UK adults (52%) haven’t sought guidance or support to better understand how to tackle their money woes. Those that have looked for help most commonly turn to price comparison websites (19%), their family (15%) or the news (12%). Only 7% (3.9 million people) have sought out professional !inancial advice. PRESSURE ON FINANCES One way to help ease the pressure on household budgets is to make sure that people are getting all the bene!its and tax credits they are entitled to. There are a number of government schemes available which can help with things like childcare costs, housing costs and council tax. Make sure you are claiming everything you are entitled to by checking the government’s website. Another way to ease the pressure on your !inances is to make sure you are getting the best deal on your essential bills. This includes things like your energy bills, your water bill and your broadband package. There are a number of comparison websites which can help you to !ind the best deals. It is also worth speaking to your current providers to see if they can o#er you a better deal. Source data: [1] Opinium survey of 4,001 UK adults was conducted between 27!31 May 2022 for Legal & General. HEADING OFF DIFFICULTIES LATER DOWN THE LINE Life is becoming una#ordable for many people due to the cost-of-living crisis. Obtaining professional !inancial advice is invaluable, especially when navigating more complicated !inancial situations, such as retirement. Seeking the right help now could head o# di"iculties later down the line. FINANCIAL PLANNING 07 DECIDING WHETHER TO WITHDRAW CASH FROM YOUR PENSION POT Choosing what to do with your pension is a big decision. If you’ve been saving into a de!ined contribution pension (sometimes called ‘money purchase’) during your working life, from age 55 (age 57 in 2028) you need to decide what to do with the money you’ve saved towards your pension when you eventually decide to retire. CASH MAY NOT BE KING /// B E FO R E YO U TA K E ANY C A SH OUT OF YOUR PENSION , YOU NEED TO CA LC U L AT E H OW M U C H MONEY YOU AC TUALLY NEED. DO YOU NEED A LU M P S U M O F C A S H A L L AT O N C E ? I F S O, W H AT A R E THE TAX IMPLIC ATIONS? 08 RETIREMENT However, making the wrong decision could cost you heavily in the form of an unwanted tax bill, eventually running out of money in retirement and even a tax credits and bene!its overpayment. So before you do anything, there are things you should consider. Note: this article doesn’t cover pension schemes where the pension you’ll be getting is worked out as a proportion of your pay. HOW MUCH MONEY DO YOU NEED TO RETIRE? Before you take any cash out of your pension, you need to calculate how much money you actually need. Do you need a lump sum of cash all at once? If so, what are the tax implications? Or would you be better o# with a regular income stream? Remember that retirement could be 30 to 40 years, or more. As well as what you’ll need to cover everyday living expenses, do you have any speci!ic plans for your retirement, such as regular holidays or enjoying a hobby? Or are you thinking of any big one-o# purchases or expenditure, like a new car or home improvements? Once you know how much money you need, you can start to look at your options. WHAT ARE THE TAX IMPLICATIONS? Taking cash out of your pension can have tax implications if you withdraw more than your tax-free element (typically 25% of your pension). You can leave the rest invested until you decide to make more withdrawals or set up a regular income. However, you need to make sure you understand those implications before you make any decisions. Otherwise, you could end up with a signi!icant tax bill that you weren’t expecting. WHAT ARE THE FEES? When you retire and start taking money out of your pension, you may be charged fees by your pension provider. Some pension providers will charge a fee for each withdrawal you make, while others may charge a !lat rate or percentage of your pension pot. There may also be other charges, such as an administration fee. Taking money out of your pension will also reduce the amount of income you have in retirement, so it’s important to think carefully before you decide to take any money out of your pension pot. HOW LONG WILL THE MONEY LAST? Consider how long you’ll need the money to last. If you take a lump sum of cash, it’s likely that it won’t last as long as if you take an income. This is something to keep in mind when you’re making your decision. WHAT IF YOU NEED MORE MONEY LATER? If you take cash out of your pension now, it may not be there if you need it later on in life. This is something to consider if you think you may need more money down the line. Even if you’ve seen the value of your pensions fall that doesn’t necessarily mean that you’ll have to delay your retirement altogether. Could you take less from your pension savings until their value recovers, and use other savings instead to bridge the gap? And could you put o# any big purchases you’d planned? WHAT ARE THE RISKS? Taking cash out of your pension comes with risks. There’s the risk that you could outlive your money, or that the value of your pension could go down. You need to make sure that you understand all of these risks before you make a decision. OPTIONS FOR USING YOUR DEFINED CONTRIBUTION PENSION IN RETIREMENT Keep your pension savings where they are – and take them later. Use your pension pot to buy a guaranteed income for life or for a !ixed term – also known as a ‘lifetime’ or ‘!ixed term annuity’. The income is taxable, but you can choose to take up to 25% (sometimes more with certain plans) of your pot as a one-o# tax-free lump sum at the start. Use your pension pot to provide a !lexible retirement income – also known as ‘pension drawdown’. You can take the amount you’re allowed to take as a tax-free lump sum (normally up to 25% of the pot), then use the rest to provide a regular taxable income. Take a number of lump sums – usually the !irst 25% of each lump sum withdrawal from your pot will be tax-free. The rest will be taxed as income. Take your pension pot in one go – usually the !irst 25% will be tax-free and the rest is taxable. Mix your options – choose any combination of the above, using di#erent parts of your pot or separate pots. UNDERSTANDING THE DIFFERENT OPTIONS This is a very complicated topic and choosing what to do with your pension is one of the most important decisions you’ll ever make and will impact on your future standard of living in retirement. Worryingly, over a third (35%) of pension holders do not know about the di#erent options available to them for when the time comes to retire, according to research[1]. Source data: [1] Online omnibus conducted by Opinium in June 2021 for LV – 4,000 representative UK adults surveyed nationally. A PENSION IS A LONG$TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. TAX TREATMENT VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE. THINKING ABOUT ACCESSING YOUR PENSION POT? These are just a few things to consider before taking cash from your pension pot. As you approach retirement, it’s essential to understand what your options are and obtain professional advice, otherwise you could end up making a decision that you regret later on. For more information or to review your options, please contact us. RETIREMENT 09 ONE IN SIX OVER$55s HAVE NO PENSION SAVINGS YET Despite the fact that the government has been trying to encourage people to save for their retirement through initiatives such as auto-enrolment, there are still too many Britons who have no pension savings at all. Research reveals that a !ifth (20%) of people still have no pension savings at all, and people nearing retirement aren’t doing much better[1]. Even prior to the cost-of-living crisis there have been a number of reasons why this might be the case. For some people, they simply may not be aware of the need to save for retirement. Others may not have enough spare income to put into a pension pot after covering their essential living costs. MORE COMFORTABLE However, the most common reason is people believe they will have plenty of time to start saving later on in life. But this is not the case. Even if you are in your 20s or 30s, it is never too early to start saving for retirement. The sooner you start, the more time your money will have to grow. Findings also highlight the fact that one in six people (16%) who are within sight of their retirement still have no private pension savings, and consequently are missing out on the opportunity to make their life after work more comfortable. ALARMING NUMBER At least 17% of people in the UK aged 55 and over admit to having no pension savings (other than the State Pension), which is only slightly better than the average for Britons as a whole – 21% of whom say they have no private pensions. What this research shows is that an alarming number of people are e#ectively ‘sleepwalking’ towards their retirement without adequate preparations. But, there are signs that as people grow older, they are becoming aware that a lack of pension savings is a problem – though perhaps not quickly enough. PENSION DEFICIT The issue is most visible among adults aged under 35. Nearly a quarter (24%) of this group claim to have no pension savings at all, despite being a generation to bene!it from auto- enrolment into workplace pensions. After 35 this drops to one in !ive, and then to one in six for the over-55s. Clearly, people do start to save more as retirement draws nearer, even if they have missed out on the opportunity to save over many years. Lack of pension savings is a particular issue for those not in full-time employment. Encouragingly, just 8% of respondents who worked full time said they had nothing in their pension. But among part-time workers this !igure was one in four (24%), indicating that part-timers face a potential pension de!icit when they retire. WORRYING STATISTIC The people worst a#ected tend to be those not currently working at all – whether because they are unemployed or because they are full-time parents. Nearly 60% of this group said they had no pension savings. Where this is because of full-time parenthood, the parent in question may be relying solely on their partner’s pension in later life. This is a risky strategy, both because that pension may not be enough for both of them, and because of the risk of relationship break-up. Another worrying statistic highlights that one in !ive people simply don’t know how much they have in their pension savings. Curiously, this uncertainty grows rather than shrinks as people get older: while 14% of under-35s are unsure, this rises to 22% between the ages of 35 and 54, and then to 24% among the over-55s. SUBSTANTIAL INCOME It may be the case that many of those who think they have no pension savings are wrong, and that they do have pension pots from previous jobs (or even their current job) that they don’t know about. The !irst step for anyone who thinks they are pension-less is to contact the government’s Pension Tracing Service and search through their previous employers to see if they were ever a scheme member. However, some people will reach the age of 55 (the earliest age that someone can access pension pots) and !ind that they genuinely have no pension savings. But this isn’t a reason to give up and assume it’s too late. Although a person close to retirement has a lower chance of saving enough to provide a substantial income, pensions can help your money to go a lot further. Source data: [1] Survey by Unbiased and Opinium of 2,000 non-retired UK adults, conducted June-July 2020. A PENSION IS A LONG$TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. READY TO DESIGN YOUR RETIREMENT? There are a number of ways you can save for retirement, such as through a workplace pension or a personal pension. So if you haven’t started, now is the time to do so. It may seem like a long way o#, but the sooner you start saving, the better prepared you will be for your future. If you would like to discuss your situation or concerns you may have about a pension shortfall, please contact us. ARE YOU SAVING ENOUGH FOR RETIREMENT? 10 RETIREMENT WHAT TO CONSIDER IF YOU HAVE MULTIPLE PENSION POTS The employment landscape has evolved signi"icantly over the last few decades and changing jobs multiple times before retirement is now very much the norm. But did you know, there is an estimated £9.7 billion of unclaimed UK de!ined contribution pension funds?[1]. Over time, it is easy to lose touch with pension savings providers as we change jobs, move home and the companies we have worked for change ownership or close down. All these events over time may make it very di!!icult to !ind your valuable pension savings. So that means potentially ending up with a number of di!ferent pension pots. If you’re one of the millions of people with multiple pensions, it may be appropriate to consider consolidating your de!ined contribution pension pots and bring them together. NUMBER OF DIFFERENT PENSIONS Even if you have not had many jobs, you could still have a number of di#erent pensions to keep track of. If appropriate, pension consolidation can simplify your !inances and make it easier to keep track of your retirement savings. Having said this, not all pension types can or should be transferred. It’s important to obtain professional advice so you know and can compare the features and bene!its of the plan(s) you are thinking of transferring. WHAT IS PENSION CONSOLIDATION? Pension consolidation is the process of combining multiple pension pots into one single pot. This can be done with a pension transfer or by opening a new pension and transferring your other pensions into it. You may want to do this to make it easier to keep track of your retirement savings, or to try and get a better rate of return on your investment. But there are a few things to consider before consolidating your pensions, such as any exit fees that may be charged, and whether or not you will lose any valuable bene!its such as guaranteed annuity rates. CONSOLIDATING YOUR PENSIONS REASONS WHY YOU MIGHT WANT TO CONSOLIDATE YOUR PENSIONS Simplify your "inances: If you have multiple pension pots, it may be di"icult to keep track of them all. Consolidating your pensions into one pot could make it easier to manage your retirement savings. Save on fees: If you have multiple pensions with di#erent providers, you may be paying multiple annual fees. Consolidating your pensions may help you save money on fees. Get better investment options: Some pension providers o#er a limited number of investment options. By consolidating your pensions it could give you access to a wider range of investments. REASONS WHY YOU MAY NOT WANT TO CONSOLIDATE YOUR PENSIONS Loss of valuable bene"its: One key disadvantage is that you may lose out on valuable bene!its that are speci!ic to certain pension schemes. For example, some schemes may o#er better death bene!its than others, so consolidating your pensions into one pot could mean giving up this valuable protection. Paying higher fees: Another potential downside is that some schemes may have higher charges than you are actually currently paying, which means you would end up paying higher fees. This is something that needs to be carefully considered before making any decisions. More di#icult to access: It’s important to remember that once you consolidate your pensions, it may be more di"icult to access them early if you need the money for an emergency. This is something that should be taken into account when making any decisions about pension consolidation. LOCATE YOUR PENSION FUNDS If you think you might have lost a pension pot from a previous job, you can use the government’s Pension Tracing Service at www. gov.uk/!ind-pension-contact-details.This enables people to locate money previously saved for retirement, that is unclaimed. So, it is worth checking if you could have pension funds that have not been claimed. Finally, one thing you also need to bear in mind is that pension savings are big targets for fraudsters. If someone contacts you unexpectedly o#ering to help you transfer your pot, it’s likely to be a scam. If you’re concerned, contact the Financial Conduct Authority (FCA) to check they’re legitimate. Source data: [1] https://www.pensionspolicyinstitute.org.uk/ media/2855/201810-bn110-lost-pensions-"inal.pdf A PENSION IS A LONG$TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. BRINGING PENSIONS TOGETHER NEED PROFESSIONAL ADVICE TO HELP MAKE YOUR DECISION? You only have one retirement so you don’t want to make a costly mistake with your pensions that you could one day regret. Before you look to bring your pensions together, it’s essential to obtain professional advice. For more information about how we can assist you through this complex process, please contact us to discuss your situation. RETIREMENT 11 HOW TO PROTECT YOU AND YOUR FAMILY’S FUTURE WHAT KIND OF PROTECTION INSURANCE DO YOU NEED? There are various complex risks in life that we all face, such as serious illness, an accident or death. What would happen if something were to happen to you? Would your family be able to cope !inancially with the impact an unexpected event might have? 12 PROTECTION These are not easy questions to ask but it is important to consider what would happen if an unexpected event or accident took place, and how you could protect your family from the !inancial e#ects of serious illness or death. BIG PART IN OUR LIVES Deciding what your priorities are and understanding what options you have are key parts of the protection planning process. This helps you ensure that you have the !inancial protection most suitable for your circumstances. Every family is di#erent, but they often play a big part in our lives. It’s important to think about how we can protect them against the unexpected as best we can. PROTECTION FOR THE UNEXPECTED LIFE INSURANCE Death is an unpredictable event, so it’s important to make sure you have the right level of cover in place. The amount of life insurance you need will depend on your individual circumstances. There are many good reasons to take out a policy. For example, if you have dependents who rely on your income, then life insurance can provide !inancial security for them if you die. There are di#erent types of life insurance available, so choosing the right policy for your needs is key. Term life insurance provides cover for a set period of time, while whole of life insurance covers you for your entire life. You can also choose between level term insurance, which pays out a !ixed amount if you die during the term of the policy, and decreasing term insurance, which pays out less as the policy progresses. There is also a variation on the basic term assurance theme that is often worth considering as it can reduce the cost of cover. Family Income Bene!it is a policy with a sum assured that reduces uniformly over time but provides regular payments of capital on the death of the breadwinner (the life assured). If you have any debt, such as a mortgage, then it’s also important to take out life insurance to make sure that this is paid o# if you die. This will give your loved ones peace of mind and prevent them from being burdened with debt. INCOME PROTECTION INSURANCE There are a number of reasons why income protection insurance should be a part of your protection planning. Firstly, it can help to protect your income if you are unable to work. This could be due to an illness, injury or disability that means you are unable to work. It can help to cover the costs of your everyday living, such as your mortgage or rent, bills and food. If you do not have su"icient protection in place this may mean you have to rely on your savings, or on the help of family and friends. Income protection insurance is especially important if you are self-employed or have a family to support. If you are unable to work, your income protection policy will provide you with a replacement income so that you can continue to meet your !inancial obligations. There are di#erent types of income protection insurance policies available, so you should obtain professional !inancial advice to ensure you can compare the di#erent options and fully understand the terms and conditions of the policy. CRITICAL ILLNESS COVER If you become seriously ill or are diagnosed with a speci!ied critical illness, even if you are still able to work, critical illness cover could provide you with a !inancial safety net. It can help to pay for treatment, to make adaptations to your home or lifestyle, provide an income for your family if you are unable to work or other costs associated with your illness. In some cases, it may even pay out a lump sum if you die as a result of your condition. The tax-free money from the policy could be used to help cover the cost of treatment, make adaptations to your home or lifestyle or provide an income for your family. There is no guarantee that you will not experience a critical illness during your lifetime, so it is important to have this type of cover in place. It will give you the peace of mind of knowing that you and your family are !inancially protected if the worst were to happen. Critical illness cover is not a substitute for health insurance. INCOME PROTECTION INSURANCE PLANS HAVE NO CASH IN VALUE. IF PREMIUMS ARE NOT MAINTAINED COVER WILL LAPSE. NEED A HELPING HAND FOR YOU AND YOUR LOVED ONES? Do your children, partner or other relatives depend on your income? Many families would have to cut their living costs in order to survive !inancially in the event of the main breadwinner falling ill or dying prematurely. If you are unclear on your protection requirements, we are here to explain your options. Please contact us for more information. /// IF YOU BECOME SERIOUSLY ILL AND ARE DIAGNOSED WITH A SPECIFIED CRITICAL ILLNESS, EVEN IF YOU ARE STILL ABLE TO WORK, CRITICAL ILLNESS COVER COULD PROVIDE YOU WITH A FINANCIAL SAFETY NET. PROTECTION 13 14 RETIREMENT BRIDGING THE GENDER PENSIONS GAP WOMEN LEFT WITH HALF THE PENSION POT, NO MATTER THE JOB We’ve all heard about the gender pay gap, but very few discuss the gender pensions gap, despite the fact so many women experience it. Women’s pensions at retirement are half the size of men’s, regardless of the sector they work in, new research has highlighted[1]. RETIREMENT 15 The gender pension gap is the percentage di#erence in income between men’s and women’s pensions and it begins at the very start of a woman’s career. LONG!TERM FINANCIAL IMPACT The research found that every single industry in the UK has a gender pensions gap, even those dominated by female workers. Considering women are likely to live four years[2] longer than men, this issue deepens as they need to have saved around 5% to 7% more at retirement age. Worryingly, more than a third (38%) of women who have taken a career break were not aware of the long-term !inancial impact it would have on their pension. THREE KEY INDUSTRIES According to the research, the gender pensions gap exists regardless of average pay across di#erent sectors, and ranges from a gap of 59% in the healthcare industry, to 13% in courier services. The healthcare (59%), construction (51%), real estate/property development (48%), pharmaceutical (46%), aerospace, defence and government services (46%), and senior care (45%) sectors were found to have the largest gender pensions gaps. Of these six sectors, three are key industries for female employment – healthcare, pharmaceuticals and senior care[3]. LOWER PENSIONS CONTRIBUTIONS There are many reasons for the gender pensions gap, ranging from women holding fewer senior positions and being paid less, resulting in lower pensions contributions, to the fact they are more likely to take career breaks due to caring responsibilities. Of those that have taken a career break, 38% did not know the !inancial impact it had on their pension contributions[4]. GENDER CONFIDENCE GAP Another potential driver is a signi!icant gender con!idence gap when it comes to managing pension pots. More than a quarter (28%) of women said they had con!idence in their ability to make decisions about their pension, compared to almost half (48%) of men[5]. This lack of con!idence extends further to other !inancial decisions, with women less likely than men to feel con!ident managing their investments (22% of women versus 41% of men), and their savings (56% of women versus 67% of men). WHILE MANY FACTORS BEHIND THE GENDER PENSION GAP ARE OUT OF MOST PEOPLE’S CONTROL, THERE ARE SOME ACTIONS YOU CAN TAKE TO HELP REDUCE IT: Contribute as much as you can to your pension - and start early. Compound interest remains hugely underrated and poorly understood by both some men and women. Check the charges on your historic pension pots. If appropriate, see if consolidating your pots will bring them down. Check how much your State Pension will be and when you’ll get it. If it’s not going to support your ideal lifestyle, plan how you’ll cover any shortfall. Put a bit more into your pension whenever you get a pay rise. Talk through your pension planning with your partner. Make sure you know about each other’s saving plans, contribution limits and that you are both on the same page. Keep a regular eye on your pension to make sure you’re in full control of it and saving for your ideal future. Source data: [1] The analysis is based on LGIM’s proprietary data on c.4.5 million de"ined contribution members as at 1 April 2022 but does not take into account any other pension provision the customers may have elsewhere. [2] ONS: Life expectancy at birth in the UK: 82.9 years for women vs 79 years for men; O#ice for National Statistics, 2018 – 2020. Average four years. [3] According to the ratio of female members across the Legal & General book of business. [4] Legal & General Insight Lab survey of 2,135 workplace members was conducted between 4!26 July 2022. [5] Opinium survey of 2,001 UK adults was conducted between 4!8 February 2022. A PENSION IS A LONG$TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. NEED ADVICE TO CLOSE THE GENDER PAY GAP IN YOUR PENSION? Women often have disrupted work patterns, career gaps and work part-time – this can impact their ability to save consistently for retirement without savings gaps. If you are concerned about your retirement plans and would like to review your pension options, please contact us . We look forward to hearing from you. /// THERE ARE MANY REASONS FOR THE GENDER PENSIONS GAP, RANGING FROM WOMEN HOLDING FEWER SENIOR POSITIONS AND BEING PAID LESS, RESULTING IN LOWER PENSIONS CONTRIBUTIONS, TO THE FACT THEY ARE MORE LIKELY TO TAKE CAREER BREAKS DUE TO CARING RESPONSIBILITIES. 16 RETIREMENT But the cost-of-living crisis is now a#ecting some pensioners drastically, with more older people starting to return to work amid the ongoing crisis, new research has highlighted[1]. The !indings identi!ied economic activity levels among the over-50s are now at their highest since the pandemic began. IMPACTING PENSIONS Analysis of o"icial statistics appears to show the !irst signs of a return to the long-term trend of more economically active people over the age of 50 – a decades-long trend which, it said, was reversed by the pandemic. Spiralling in!lation and turbulent !inancial markets impacting pension funds are causing some people to unretire and !ind work again. There has been an increase in economic activity (those in work or looking for work) of 116,000 among the over-50s in the past year. More than half of the increase is being driven by men over the age of 65. RETIRING COMFORTABLY In some ways, the pandemic forced the hands of many and gave them an opportunity to trial retirement. An early retirement can often seem like a dream when you’re stuck in the thick of the daily grind but, for many, giving up work abruptly can also result in a loss of structure, social connections and purpose, which can leave people feeling lost at times. The current economic climate means that some people who thought they could retire comfortably during the pandemic are now having to unretire and !ind work again to bring in some extra income and top up their pensions while they still can. Source data: [1] Analysis by www.restless.co.uk – Economic activity levels amongst people over the age of 50 hit their peak of just over 11 million just before the pandemic in the three-month period from December 2019 – February 2020. Since then, we have seen a decades-long trend reverse, with economic activity levels of workers aged over 50 falling by as much as 223,000 during the pandemic. UNRETIREMENT MORE OVER$50s RETURNING TO WORK AMID COST$OF$LIVING CRISIS Older workers have been leaving the jobs market in their droves over the past two years, partly due to many re-evaluating what they want from their lives and careers during the course of the COVID$19 pandemic, and also due to the devastating impact the pandemic had on the prospects for many older jobseekers, who felt they had no choice but to leave the workforce. WANT TO DISCUSS HOW TO MAKE YOUR MONEY WORK FOR YOU? If you’re getting ready to retire, or maybe you’ve already retired, now may be a good time to think about professional !inancial advice. It can take some of the worries out of retirement planning and ensure your money will go further. So if you have any concerns about your retirement, we can help make your money work for you. To talk to us, please contact us – we look forward to hearing from you. FINANCIAL PLANNING 17 As the cost-of-living crisis continues to exacerbate pressure on households across the UK, what this research shows are some of the measures that consumers are having to take just to keep their cars on the road. PURCHASING CHEAPER ITEMS While you could make an active decision to purchase cheaper items at the supermarket, when it comes to fuel, options are limited, meaning cutbacks have to be made in other areas on households that are already stretched in many cases. Instead, consumers are cutting back in other areas to continue to do essential trips like drive to work, run errands and visit the supermarket. The research highlights how habits at the pump have changed in response to the cost-of-living crisis. DEMAND FOR ENERGY More than a third (34%) of consumers now need to stop !illing up at an exact value and 26% rarely !ill their tanks to the brim as they can’t a#ord to do so. Almost a quarter (23%) are using their savings to put fuel in their cars and 22% are using credit cards. Fuel prices have increased sharply because the price for crude oil, which is used to make petrol and diesel, has gone up. Crude oil was cheaper at the beginning of the COVID$19 pandemic, because many businesses temporarily closed and demand for energy collapsed. FUEL MORE EXPENSIVE As life returned to normal, the demand for energy increased. But suppliers have struggled to keep up and prices have risen. Another problem is that the oil used to make petrol is paid for in US dollars. The pound has been weak against the dollar, making fuel even more expensive. Despite fuel prices dipping slightly in recent weeks, the !indings show the extent to which consumers are still having to cut back to ensure they can a#ord to get from A to B, with more than eight in ten (83%) more concerned about their !inances than they were a year ago. DRIVERS FORCED TO CUT BACK IN THE FOLLOWING WAYS: 46% are eating out less 35% are either spending less on their food shopping or have switched supermarket to save money 34% now have to stop !illing up at a speci!ic value as they know exactly what they can a#ord 31% are cutting down on the volume and quality of food they buy from the supermarket 26% now rarely !ill their fuel tanks to the brim as they cannot a#ord it 25% have cut back on gym memberships and subscription services 24% are reducing spend on school trips, days out and weekends away 23% are using their savings to pay for fuel 22% need to use their credit card to cover the cost of fuel 21% have stopped putting money aside in either a savings account or pension pot STAYING MUCH CLOSER TO HOME The research found that 28% of consumers also had to change their staycation plans during the summer months and stayed much closer to home, thanks to the high cost of fuel. Furthermore, and with one eye on the expectation that the cost-of-living crisis will only get worse, 18% said they decided to go on holiday this summer, as it could be their last one for many years. Source data: Fieldwork was undertaken between 21!22 July 2022 for Nationwide Building Society. The survey was carried out online by Censuswide. Censuswide abides by and employs members of the Market Research Society, which is based on the ESOMAR principles. COST$OF$LIVING CRISIS BRITONS CUTTING BACK ON FOOD AND ENTERTAINMENT TO KEEP CARS ON THE ROAD Soaring petrol costs pushed in"lation to its highest level for 40 years. New research has uncovered the impact of these high fuel prices on consumers as more than a third (35%) are spending less on food to keep their car on the road[1]. NAVIGATING THE COST!OF!LIVING CRISIS Whether you need retirement and pensions advice, support with estate planning, would like to invest for children or achieve other goals, or have concerns about dealing with the cost-of-living crisis, we’re here to help. To !ind out more, please contact us. 18 RETIREMENT FUNDING THE LIFESTYLE YOU WANT GET YOUR RETIREMENT PLANS IN MOTION One of the most common concerns among those approaching retirement is whether they will have enough money to last them. A new study[1] shows that only 25% of retirees feel very con!ident they’ve saved enough for retirement. RETIREMENT 19 As food prices continue to soar and petrol costs reach an all-time high in the UK, the rising cost of living is without doubt having an impact on many people’s !inancial plans, both short and long term. If you’re approaching retirement or have already started taking money from your pension or other retirement savings, you wouldn’t be alone in feeling a little anxious about the e#ect the cost-of-living crisis might have on your lifestyle in retirement. While it’s impossible to predict the future with complete certainty, there are a few things you can do to feel more con!ident about spending your money in retirement. ADD UP ALL YOUR SOURCES OF INCOME Your main source of retirement income may well be your pension plan. But when it comes to planning your !inances in retirement, it’s important to think beyond this. Consider other potential sources such as Individual Savings Accounts (ISAs) and other investments, as well as any rental income you receive from rental properties you let. And don’t forget the State Pension, which is currently £185.15 a week (£9,628 a year) for a single person with a full entitlement. Although the State Pension’s annual increase is currently below in!lation, every little helps and the total of all your savings and income might add up to more than you think. WATCH OUT FOR UNNECESSARY TAX BILLS Paying too much tax in retirement is a common pitfall for some retirees, and one that could be potentially avoided with having the right plans in place. If you’re already taking or plan to take income from multiple sources, you need to consider how that will be taxed. When and how you take your money can make a big di#erence to how much tax you pay and how long it will last. Taking money little and often could make all the di#erence when it comes to reducing your tax bill. When it comes to your pension savings, you can typically take 25% tax-free from age 55 (age 57 in 2028), either in one go or spread out over a longer period. After this, any money you take from your pension savings, as well as your State Pension, is taxable just like any other income. That means you’ll need to pay income tax on anything over your tax-free cash limit and any annual personal Income Tax allowance you get. It’s likely that the more money you take, the more tax you’ll have to pay, although how much will depend on which tax band your income falls into. So if you take all of your pension savings at once, or in big lump sums, you could be paying more tax than you need to. But by taking your pension savings over a number of years and taking just enough to stay in the lowest tax band you can, you could keep more of your money overall. MAKE THE MOST OF YOUR INDIVIDUAL SAVINGS ACCOUNT (ISA) Another way to avoid an unnecessary tax bill is to make the most of your ISA savings. You don’t pay tax on any investment growth or interest you earn, or on the proceeds you take from an ISA. So it’s a very tax-e"icient way to save. You could consider using any ISA savings you have !irst and delay accessing your pension savings, giving them more time to stay invested and potentially grow in value. Remember though, the value of all investments can go down as well as up, and you may get back less than you paid in. Or, if you’ve already started taking an income from your pension, you could use your ISA savings to supplement that income. This could allow you to take smaller payments from your pension and avoid overpaying Income Tax on them. Getting to grips with tax implications can be a bit overwhelming as there’s a lot to consider. Tax rules and legislation can change, and personal circumstances and where you live in the UK also have an impact on your tax treatment. On top of that, tax varies for other sources of income like property, state bene!its, or even your salary if you’re planning on working in some capacity for a little longer. KEEP TRACK OF YOUR INVESTMENTS Where your money is invested could have the biggest impact on how long it will last in retirement. It’s important to regularly review your investments to make sure they remain on track and remain aligned with your plans and attitude to investment risk. For example, your pension savings may be invested in fairly high-risk funds that have the potential to grow signi!icantly in value, but also are more likely to be impacted, particularly during periods of market volatility. Moving to lower-risk investments means that you’re less likely to see big ups and downs in the value of your pension savings. However, if you’re relying on your pension savings to provide you with a comfortable income for the rest of your life, you also need to make sure that your investments will provide enough growth potential. This is particularly important in the current climate where your money faces the double challenge of rising in!lation and potentially having to last for many years. Source data: [1] Class of 2022 UK retirement report consumer research of 2,000 UK adults for abrdn who were either planning to retire in the next 12 months, or who had retired in the 12 months prior. Research was conducted by Censuswide in late November / early December 2021. A PENSION IS A LONG$TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. TAX TREATMENT VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE. WANT TO REVIEW YOUR RETIREMENT PLANS? If you have speci!ic questions about funding your retirement lifestyle, or if you’re feeling anxious about spending money in retirement, speak to us to discuss your options. 20 FINANCIAL PLANNING The survey shows that families are becoming more comfortable talking about money, and that children are becoming more interested in learning about personal !inance. VALUE OF MONEY There are many reasons why families might choose to have these conversations with their children. For one, it can help teach them the value of money and how to manage it responsibly. It can also help them understand the family’s !inancial situation and make informed decisions about their own future. It’s clear that more and more families are !inding value in talking about money with their children. And that’s a good thing for everyone involved. UNCOMFORTABLE CONVERSATION As a nation we have historically seen money as an uncomfortable conversation, but times are changing. Talking about money matters openly when growing up can help children and young adults prepare themselves for dealing with !inances once they leave home or start work. Younger adults are signi!icantly more likely to have talked about money matters with their parents when growing up compared to the generations that went before them. SAVINGS HABITS Three in four (76%) 18$24-year-olds spoke to their parents about money matters when they were growing up. This compares to just 43% of those 65 or over, 52% of 55$64-year-olds and 58% of 45$54-year-olds. Parents who talk to their children about money could make them more likely to be aware of considerations around day-to-day spending, as well as the need for longer-term savings habits. LOWER INCOMES The research also reveals that those in lower income households are least likely to have talked about money with their parents when growing up. Just over half (54%) of those in households with an annual income of less than £20,000 talked about money with their parents as a child. This compares to 62% of people in households that earn between £40,000 to £59,000. Those who now have an annual household income of over £100,000 a year are most likely to have spoken with their parents about money as a child (68%). Source data: [1] Royal London commissioned research agency Cicero/amo to undertake a nationally representative survey (by age, gender and region) of 3,042 adults in the UK. Fieldwork was conducted between 13!24 May 2022. IT’S GOOD TO TALK MORE YOUNG ADULTS ARE MORE ENGAGED ABOUT MONEY WITH THEIR PARENTS THAN PAST GENERATIONS When it comes to conversations about money, more and more families in Britain are opening up, new research reveals[1]. This is a signi!icant increase from previous years, when such conversations were considered taboo. CREATING WEALTH FOR FUTURE GENERATIONS When your children have a clear picture of what matters to them most, they become more con!ident in what they want to achieve. With that con!idence comes a sense of certainty about their future plans. To discuss how we can assist with their future goals and help them create future wealth, please get in touch. Striving to improve investment practices, and robust transparency standards across the investment chain, are an essential part of ensuring schemes can act as responsible stewards on behalf of millions of UK pensions savers. NET ZERO COMMITMENTS Choosing to go green on our pension investments could have a far greater impact on the environment than we may have thought. The positive news is that almost three quarters (74%) of pension schemes already have net zero plans in place, or will do within the next two years, a new survey has found[1]. This latest survey shows that pension schemes are making progress towards net zero commitments. With new Taskforce on Climate- related Financial Disclosures (TCFD) requirements coming into force, the number of schemes making such commitments is expected to grow further still. IDENTIFYING SUITABLE PERFORMANCE The news comes as climate change and Environmental, Social and Governance (ESG) stewardship continue to rise in importance and have become a central part of pension schemes’ investment strategy, with identifying suitable performance measures and devising frameworks to report on them also rising in importance. The survey found two-thirds (63%) of schemes have started working on their TCFD report, with over half (55%) saying they are within the scope of the reporting deadline and so plan to publish one this year. CLIMATE TRANSITION PLANS More than a quarter (28%) have gone a stage further and said that they have already published their TCFD report, despite it not being a mandatory requirement. In terms of stewardship, two-thirds (68%) see their key priority as investors as being climate transition plans. Over half (56%) see these being net zero targets, while around a third (37%) see board diversity and human rights (35%) as key priorities. MAJOR RISK TO PORTFOLIOS In terms of non-climate related ESG factors, diversity and inclusion (51%) and human rights (49%) are seen to be the most important. These are also the areas that most see their organisations focusing on in the next 18 months. There are a number of reasons for this increase, including regulatory pressure and public concern about climate change. However, the most important factor is likely to be !inancial: more and more investors are recognising that climate change presents a major risk to their portfolios. REVIEWING INVESTMENT STRATEGIES As a result of this increase in awareness, many pension schemes are now reviewing their investment strategies. Some are divesting from fossil fuel companies, while others are investing in green infrastructure and renewable energy. The survey shows that pension schemes are taking climate change seriously. This is a positive development, as it means that more and more people will have a retirement income that is not put at risk by the threat of climate change. Source data: [1] Research was conducted by the Pensions and Lifetime Savings Association (PLSA) among its members between 20/04/2022 and 16/05/2022. A total of 91 members responded to the survey. THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED. A HEALTHIER APPROACH TO RETIREMENT WEALTH PENSION SCHEMES HAVE A CRITICAL ROLE TO PLAY IN THE TRANSITION TO A NET ZERO ECONOMY Pension schemes have a critical role to play in the transition to a net zero economy, with many schemes already assessing the impact of their investments in the context of the goals of the Paris Agreement. HOW GREEN IS YOUR PENSION? Although we might like to think that our pension contributions are simply locked away for us to use once we retire, the reality is that this money is being invested. Greening your pension might be the single most e#ective action you can take to reduce your carbon footprint. For more information or to discuss your retirement plans, please speak to us. RETIREMENT 21 22 WELLBEING While the UK’s personal wealth has bounced back to its highest levels since before the pandemic began, our happiness and health have plummeted. The ongoing impact of the COVID$19 pandemic, combined with the cost-of-living crisis and the war in Ukraine, is having a devastating e#ect on the overall wellbeing of many people living in the UK. NEGATIVE IMPACT The !igures show that over half of all Britons (51%) think the COVID pandemic had a negative impact on their access to healthcare, rising to 57% of women and 62% of those aged 55 and over. Added to this, almost one in two people (45%) believe the pandemic has had a negative impact on their mental health (10% ’very negative’), rising to 50% of women and younger people. But it is not just COVID that has impacted on mental health, the rising cost-of-living crisis has also been a major factor. 28% of adults stated it was the number one cause of their mental health issues. The !igures also highlight that 28% of Britons now feel happier than last year, but 46% of Britons said they still felt less happy. BIGGEST CHALLENGES Over a quarter (28%) had saved money in the last year, averaging £276 per month. One in ten (10%) of all people have paid o!f some debts in the last 12 months, averaging £491 per month. However, 11% have taken out new debts in the form of credit cards, loans etc, averaging £403 per month. The cost-of-living crisis is one of the biggest challenges facing many families in the UK today. The rising cost of everyday essentials, such as food and housing, is putting enormous pressure on household budgets. SO WHAT CAN BE DONE TO HELP SOMEONE AFFECTED BY THE COST!OF!LIVING CRISIS? There is certainly no magic wand that will end the cost-of-living crisis. But there are some cost-free strategies that could make a worthwhile di!ference to your household budget’s bottom line. Here are some practical suggestions: Check your entitlement to bene!its and tax credits. There may be !inancial help available that you are not aware of. Try to cut back on non-essential spending. Take a close look at your budget and see where you can make savings. Shop around for the best deals on essentials such as food, utility bills and insurance. If you are struggling to pay your bills, speak to your creditors and try to agree a repayment plan. Seek advice from organisations such as Citizens Advice or StepChange if you are struggling with debt. SEEK AVAILABLE SUPPORT Households will barely need reminding about the bills that have gone up in recent months. According to a recent report from the Financial Conduct Authority (FCA)[2], many !inancially struggling households are failing to seek available support due to lack of understanding or feelings of embarrassment. And for retired people, the impact of these rising costs is signi!icant as most are on a !ixed income and have little opportunity to change their !inancial situation. Source data: [1] The Health, Wealth and Happiness Index was compiled and updated by the Centre for Economics and Business Research (Cebr) for LifeSearch in April 2022. The Index is based on a modelling process taking into account a range of data sources covering health, wealth and happiness and monitoring changes over time. The consumer insights research was carried out by Opinium Research between 21!25 January 2022 among 2,000 UK adults alongside bespoke research among 502 ethnic minorities in the UK, weighted to be nationally representative, between 21!26 January 2022. Additional questions on impacts on mental health over the last two years and how worse o$ "inancially consumers expect to be in the next year were carried out by Opinium Research between 22!26 April 2022 among 2,000 UK adults. [2] https://www.fca.org.uk/news/press- releases/fca-tells-lenders-support-consumers- struggling-cost-living HEALTH, WEALTH AND HAPPINESS OF A NATION OVERALL WELLBEING STILL NOT CLOSE TO BEING BACK TO LEVELS SEEN PRE$COVID While there may be a sense that after two long years the worst of the pandemic is behind us, the nation’s health, wealth and happiness are still not close to being back to levels seen pre-COVID. In fact, our happiness is at a record low, mental health issues remain high and the energy crisis, in!lation and the con!lict in Ukraine point at another chapter of uncertainty, according to new !igures[1]. CONTACT THE COMPANY IN QUESTION AND EXPLAIN YOUR SITUATION Struggling to make ends meet when it comes to the everyday cost of living is nothing new for vast swathes of the population. If you are falling behind with household bills or repayments on debts, it’s crucial to contact the company in question and explain your situation. It may agree to reduce your payments for an agreed period of time, and/or set up a payment plan. The power of compounding returns over decades is potentially enormous if you save consistently and invest in the !inancial markets. You can start small but get started. If you are contemplating investing and looking to take your !irst steps, we’ve provided ten tips to get you started. 1. HAVE A PLAN To start o# with, it’s important to have a plan for your investments. This means having an idea of what you’re trying to achieve and how you’re going to get there. Are you looking to invest for a speci!ic goal? Are you looking to achieve investment growth, income or both? Ultimately without a plan, it’s easy to get o# track and make decisions that aren’t in line with your investment goals. 2. START SMALL You don’t need a large sum to start investing. In fact, drip-feeding what you can a#ord each month – or gradually whittling away a lump sum – could be bene!icial during times of stock market turmoil and economic uncertainty. Your money buys more shares at a cheaper price when the market falls, and fewer shares at a higher price when the market rises. This averages out the price at which you buy investments and, over time, could help to smooth portfolio performance. 3. USE YOUR TAX ALLOWANCES Remember your Individual Savings Account (ISA) allowance, which renews annually on 6 April. This currently amounts to £20,000 for the 2022/23 tax year. Investments inside an ISA grow tax-e"iciently, which means more of your money goes towards achieving your future goals. 4. BE PATIENT Investing is a long-term process, that’s why it’s important to be patient. Don’t try to time the market or make decisions based on short-term !luctuations. Instead, focus on your overall investment goals and stick to your plan. 5. DIVERSIFY As the saying goes, ‘Don’t put all your eggs in one basket.’ When you diversify, you spread your risk across di#erent investments and sectors, which can help you weather the ups and downs of investment markets. 6. REVIEW YOUR PORTFOLIO Your investment portfolio should be reviewed on a regular basis. This will help you make sure that your investments are still in line with your goals and that you’re not taking on too much risk with where your money is allocated . 7. STAY DISCIPLINED Investing can be emotional, which is why you need to stay disciplined. Don’t let greed or fear in!luence your decisions. Instead, keep focused on your goals and stick to your plan. 8. HAVE A TIME HORIZON When you’re investing, it’s important to have a time horizon in mind. This is the amount of time you’re willing to wait for your investments to grow. For example, if you’re investing for retirement, you’ll likely have a longer time horizon than someone who’s investing to fund a child’s further eduction. 9. BE PREPARED FOR BUMPS IN THE ROAD Investing isn’t always smooth sailing. There will be times, as we’ve seen in recent years, when the market is down or your investments don’t perform as well as you’d like. It’s important to be prepared for these bumps in the road and have a plan for how you’ll handle them. 10. SEEK PROFESSIONAL ADVICE If you’re not sure where to start or how to create a diversi!ied portfolio, seek professional advice. We’re here to provide you with the guidance you need to make smart investment decisions and take your !irst steps. THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE. TEN TIPS FOR FIRST$TIME INVESTORS READY TO GET STARTED ON YOUR INVESTMENT JOURNEY? Investing can help you grow your money faster than simply saving, but it can also be a little daunting knowing where to begin. You may think the volatile global stock markets may not be the ideal starting point for new investors, but it’s always a good time to begin investing. PROFESSIONAL EXPERT INVESTMENT ADVICE AT YOUR SERVICE Investing can be complicated. It can be hard to know where to begin if you don’t have much experience. We are here to help you understand how to invest, make the most of your money and achieve your !inancial goals. If you are ready to start your investment journey or want discuss any existing investments goal, please get in touch. INVE STMENT 23 24 RETIREMENT WHEN SHOULD I STOP WORKING? HOW TO TELL WHETHER YOU’RE READY TO RETIRE Do you have enough income to retire? Are you prepared for the life changes retirement will bring? Is this the right time to sell your business? Is your timing right or will your savings and investments be at risk from volatile market conditions? The best time to retire will depend on a variety of factors, including your health, your !inancial situation and your personal preferences. If you’re in good health and you have a solid !inancial foundation, you may be able to enjoy a long and active retirement. On the other hand, if your health is declining or you’re struggling to make ends meet, retiring sooner may be the best option. SPENDING POWER EACH YEAR Ultimately, the decision of when to retire is a personal one. It’s important to do some soul- searching and research before making a !inal decision. Once you’ve decided when the right time for you is, be sure to plan carefully to make the most of your retirement years. Some people may now need to think about the impact that in!lation could have on their retirement income, and to consider whether they can a#ord to retire yet. Rising in!lation can wipe years of retirement income o# pension pots as savers must increase the amount they withdraw to maintain the same spending power each year. IMPACT ON RETIREMENT PLANS In!lation can have a signi!icant impact on your retirement plans. If in!lation is high, the purchasing power of your savings will decrease over time. This means that you will need to save more money in order to maintain your standard of living in retirement. To o#set the impact of in!lation, you may need to adjust your retirement plans. For example, you may need to save more money so that you can maintain your standard of living in retirement. Additionally, you may need to invest in assets that are less vulnerable to the e#ects of in!lation. Bonds are one type of investment that can help protect your portfolio from in!lation risk. In general, they can o#er relative stability, but you need to take your age and risk tolerance into consideration. POTENTIAL EFFECTS OF INFLATION While in!lation can have a signi!icant impact on your retirement plans, there are steps you can take to o#set its e#ects. By saving more money and investing in assets that are less vulnerable to in!lation, you can help ensure that your retirement plans remain on track. Additionally, by RETIREMENT 25 being aware of the potential e#ects of in!lation, you can make adjustments to your plans as needed to account for its impact. As you get closer to retirement, it’s important to start thinking about how in!lation could impact your plans. While in!lation can be a good thing if it leads to higher wages and increased economic activity, it can also be a problem if prices start rising faster than your income, as we’ve seen this year with in!lation reaching a new 40-year high amid a cost-of-living squeeze. THERE ARE SOME GENERAL PRINCIPLES THAT CAN HELP GUIDE YOUR THINKING ON THIS IMPORTANT TOPIC: The !irst principle is that it’s never too early to start planning for retirement. The sooner you start saving and investing for retirement, the more time your money has to grow. This is due to the power of compounding – which essentially means that your money earns interest on itself over time. The second principle is that retirement planning is not a one-time event. Your retirement timeline will likely change as life circumstances change. For example, you may need to adjust your timeline if you have children or other family members who depend on you !inancially. The third principle is that retirement is not an all-or-nothing proposition. You don’t have to retire completely in order to enjoy a comfortable lifestyle in retirement. Many people choose to work part-time or pursue other interests during retirement instead of (or in addition to) simply sitting around and doing nothing. TIME TO UTILISE CASH FLOW MODELLING? Planning for retirement is a complex task, made even more di"icult by the fact that most of us don’t have a crystal ball to predict the future. This is where retirement cash !low modelling can be incredibly useful. This can help you estimate your future income and expenses in retirement and give you a better idea of how much money you’ll need to have saved in order to maintain your current lifestyle. By creating a model of your expected income and expenses, you can better plan for your retirement and make sure that you have enough money to cover your costs. This type of modelling can also help you to identify any potential shortfall in your retirement savings, so that you can make adjustments to your plans accordingly. If you are nearing retirement or are already retired, cash !low modelling can help you: understand how much income you will need in retirement; work out how long your retirement savings will last; determine the best way to use your retirement savings to generate an income in retirement; and !ind out how di#erent life events (such as taking a career break or downsizing your home) could impact your retirement cash !low. WOULD AN ANNUITY BE BENEFICIAL? Annuities can be a good way to combat rising in!lation. Increasing annuities guarantee a stream of income that can o#er protection against the cost of living. However, it is important to choose an annuity that has a high enough rate of return to outpace in!lation, as otherwise you may end up losing purchasing power over time. Some annuities o#er built-in protection against in!lation. For example, some annuities o#er cost- of-living adjustments that increase payments to keep pace with in!lation. This can help retirees maintain their purchasing power and keep up with the rising costs of living. While annuities are not the only solution for combating rising in!lation, they can be a helpful tool for retirees. Ultimately, whether or not an annuity is a good way to combat in!lation depends on your individual circumstances. If you are concerned about preserving your purchasing power in retirement, an annuity can be a helpful tool. However, you should obtain professional !inancial advice to weigh the costs and risks associated with an annuity before making a decision. ARE YOU SITTING ON TOO MUCH CASH? If you’re sitting on too much cash right now, with in!lation on the rise, that cash could be losing value, so you may want to rethink your strategy. In!lation is a natural occurrence that happens when the prices of goods and services start to increase. This can erode the purchasing power of your money, which means that you’ll need more money to buy the same items. There are a few ways to combat in!lation and ensure that your money keeps its value. One option is to invest in assets that may appreciate in value, such as stocks and shares or property. No matter what strategy you choose, it’s important to be aware of the impact that in!lation can have on your !inances. By being proactive, you can ensure that your money keeps its value over time. WHAT IS YOUR ATTITUDE TO RISK? When pension planning, your attitude to risk will play a big role in how your portfolio is structured. If you’re willing to take on more risk, you may be rewarded with higher returns. But if you’re not comfortable with risk, you may want to focus on preserving your capital. Once you have a better idea of your risk tolerance, you can start to allocate your assets accordingly. For example, if you’re okay with some volatility, you may want to put some of your money into stocks and shares. But if you’re not comfortable with any volatility, you may want to keep your money in cash and bonds. No matter how much risk you’re willing to take on, it’s important to remember that all investments come with some risk. There’s no such thing as a completely risk-free investment. But by understanding your risk tolerance, you can make sure that your portfolio is structured in a way that meets your needs. A PENSION IS A LONG$TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. ARE YOU READY FOR RETIREMENT? Retirement is inevitable, but knowing exactly when to do so is often unclear. No matter when you actually begin your retirement, you’ll bene!it from planning your post-work life as early as possible. If you would like to review your retirement plans, we’re here to listen. We look forward to hearing from you. 26 FINANCIAL PLANNING This is particularly true for those on lower incomes, who are often unable to access employer-sponsored pension schemes. The situation is made worse by the fact that the State Pension is not enough to live on, and many people may not be eligible for it. ADDRESSING THE RETIREMENT INCOME CRISIS The government has introduced a number of measures to try to address the retirement income crisis, but these have so far failed to make a signi!icant impact. The situation is only likely to worsen in the future, unless action is taken. The average earner in their thirties is on track to see their pension pot reduce by £15,000 by the time they retire due to wage stagnation. The !indings from a recent Retirement Report[1] has revealed that the average earners in their 30s who were auto- enrolled in a company pension scheme in 2012 will have potentially contributed £7,000 less by 2024. COPING WITH THE FINANCIAL PRESSURES These ‘lost contributions’ result in an overall £15,000 reduction to the individual’s total pension pot at retirement due to lost compound interest. The survey found that four out of !ive adults (81%) are concerned about making ends meet in the current cost of living climate, with three-quarters (76%) saying they need to take action to cope with the !inancial pressures. The study revealed that over a third (35%) plan to cut back on non-essential leisure and holiday spending, while others are being forced to make harder decisions, such as cutting back on essentials like food and utilities (16%). SUSTAINING A DECENT LIVING IN RETIREMENT UK pension contribution rates over the past few decades have been chronically low compared to European countries and, for the average saver, a joint employee-employer contribution rate of 8% will not be enough to sustain a decent living in retirement, leaving people with less retirement income over and above the basic safety net of the State Pensions and retirement bene!its. Over half (57%) of those surveyed said they were concerned about their !inances in retirement, while a similar number (50%) revealed they don’t feel they are preparing adequately for retirement. INVESTMENT RETURNS ARE IMPORTANT Almost a !ifth (18%) said their pension savings are invested in cash or cash-like assets, or low- risk assets such as UK Government bonds; or that they are planning to invest their pension in such assets. This means, according to the report, the average person between 35 and 54 years old – an age when investment returns are important – who holds half of their £36,200 pension savings fully in cash could be exposed to a reduction of over £1,300 in a single year in real terms, and over £2,100 in two years. Source data: [1] The survey for Scottish Widows included general questions on pensions and retirement planning and was carried out online by YouGov Plc: across a total of 5,025 adults aged 18+, weighted to be representative of the GB population, and separately for 1,002 adults aged 18+ to better understand the retirement prospects of minority ethnic groups. Fieldwork was carried out between 8!15 March 2022 for the nationally representative survey, and between 8!30 March 2022 for the survey focused on minority ethnic groups, through a 15-minute online survey. A PENSION IS A LONG$TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. TAX TREATMENT VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE. NEVER TOO EARLY TO PLAN AHEAD PENSION SAVERS STRUGGLING TO SAVE ENOUGH FOR THEIR LATER YEARS There is no doubt that the UK is facing a retirement income crisis. With wage stagnation and rising living costs, many people are struggling to save enough for their later years. CURRENT RETIREMENT PLANS ON TRACK? There’s a whole lot to think about when you’re planning for retirement. From thinking about when to retire to what to do with di#erent pension pots, planning for retirement can be both exciting and daunting. If you would like to review your current retirement plans to make sure you are on track, please contact us. New research suggests there is a growing tendency among the older generation to use the wealth held in their property to help younger generations become !irst-time buyers[1]. The research looked at spending and saving levels, as well as attitudes towards funding retirement. MORTGAGE!FREE Homeowners, particularly those who are mortgage- free, are planning to use investments, as well as their property, to help other family members move onto the property ladder. The !indings show that the average age at which people pay their mortgage o# is 51. After this, property and other wealth tends to start being spread through the generations. Of respondents, 14% say they have already helped their children to become !irst-time buyers, with a further 19% saying they will ‘de!initely or probably’ do this. Previously when surveyed in 2016[2], more respondents (19%) said they had already helped their children to become !irst- time buyers, yet fewer (13%) were ‘de!initely or probably intending to’ compared to now. FIRST!TIME BUYERS The research also shows an increase in the number of people ready to help other family members, not just their own children. In 2022, 5% say they have already helped their grandchildren become !irst-time buyers, with a further 20% saying they are de!initely or probably going to. This proportion has shifted upwards in the last six years. In 2016, 3% had already helped their grandchildren to get onto the property ladder and 14% intended to. YOUNGER GENERATIONS The same pattern emerges when it comes to helping members of the wider family to buy a home. In 2022, 3% say they have already helped with this, and a further 9% intend to, compared with 2% and 3% respectively in 2016. The amount of money older relatives are giving to younger generations has also increased, with the typical total amount given now standing at £31,398.63, 25% higher than in 2016. RELEASING CAPITAL There is also a noticeable shift towards using property wealth over other sources of income to provide help to other family members hoping to buy a home. In the latest research, the use of !inancial help sourced through property wealth has more than doubled compared with six years ago, with 40% using property assets in a number of ways, led by downsizing and equity release. In 2016, most !inancial help was sourced through using savings and investments to provide money for a deposit (71%), or to buy a property outright (10%). A further 3% cashed in pensions or used pension savings to enable this. Property wealth was used to help other family members in 17% of cases, mostly by releasing capital through downsizing or equity release. Source data: [1] Aviva research conducted for Aviva by Censuswide April 2022. 1,507 general consumers aged 45+. [2] Aviva Real Retirement Report conducted for Aviva by ICM Unlimited April 2016. 1,506 general consumers aged 45+. EQUITY RELEASE WILL REDUCE THE VALUE OF YOUR ESTATE AND CAN AFFECT YOUR ELIGIBILITY FOR MEANS TESTED BENEFITS. BANK OF GRANDMA AND GRANDAD OLDER GENERATION USING THE WEALTH HELD IN THEIR PROPERTY TO HELP YOUNGER GENERATIONS It’s no secret that many younger people tend to encounter di#iculties when seeking to enter the housing market for the "irst time. The degree to which existing homeowners are now prepared to use their own wealth to help their other family members onto the property ladder has increased notably over the last six years. HELPING YOUNGER FAMILY MEMBERS BUY A HOME It is becoming increasingly accepted that wealth held in property should be considered part of someone’s total assets, and can be used for a variety of purposes – including to help younger family members buy a home like their parents and grandparents did. Understanding the features and risks of equity release is complicated and you should always obtain professional advice. FINANCIAL PLANNING 27 28 RETIREMENT The key reason behind this low con!idence is the inability to a#ord savings on an ongoing basis, followed by worry about paying o# existing debts. FUTURE CRISIS Low-paid workers are least likely to be saving at these levels, with fewer than 5% saving at a rate which would provide an adequate standard of living in retirement. Low savings levels are a long-standing issue; however, the cost-of-living crisis is exacerbating the problem. The UK’s lowest-paid workers have been hardest impacted during the crisis, often struggling to make ends meet. As a result, many are unable to prioritise saving for retirement, and today’s cost-of-living crisis risks storing up a future crisis where millions are unable to a!ford even the basics in retirement. SAVING BEHAVIOUR Just as low pay has impacted female workers most, the gender pensions gap remains an issue. The report found that 23% of male workers met the ‘whole career’ Living Pension cash benchmark, compared to 15% of female workers, and that this is driven principally by di!fering levels of pay rather than di!fering saving behaviour. The Living Pension benchmarks are based on a previous feasibility study by the Resolution Foundation, which proposed a ‘whole career’ benchmark of 11.2% of pay, or £2,100 per year for someone working full-time at the living wage. HUGE VARIATIONS The report also highlighted that there are huge variations in whether workers are meeting the Living Pension benchmarks by sector. 55% of workers in the !inance industry save at or above the ‘whole career’ cash LP benchmark, compared to only 2% of workers in hospitality. These di!ferences persist even if they account for variations between sectors in workers’ pay levels, occupation and whether they are full-time. This suggests that sector di!ferences in pension saving are driven either by employers’ behaviour or their approach to the overall renumeration package. Source data: [1] https://www.livingwage.org.uk/sites/default/ "iles/Living%20Pensions%20Report.pdf A PENSION IS A LONG$TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. MIND THE RETIREMENT GAP FOUR OUT OF FIVE WORKERS NOT SAVING AT LEVELS WHICH ARE LIKELY TO DELIVER AN ACCEPTABLE STANDARD OF LIVING IN OLD AGE Four in "ive workers (16 million people) are not saving at levels which are likely to deliver an acceptable standard of living in retirement, according to new research[1] – these numbers exclude De!ined Bene!it pension savings. WHAT IF I COULD HAVE THE RETIREMENT I REALLY WANT? Planning so that you can enjoy today, whilst making sure there is plenty saved for the future, can be a tricky balance to get right. If you would like advice and support with retirement planning, please get in touch.
