Bankfield Financial Blog

At last! Someone who sees the value of a financial adviser!

Admin — Tue, 08 May 2012 15:24:51 +0000

The Telegraph runs an article most weeks where celebrities are asked about their attitude to money. Most of them mutter about financial advice and explain how they don’t trust anyone and either just use bank deposit accounts and ISAs or just property.

Actor, Charles Collingwood, AKA Brian Aldridge in the Archers says:

(http://www.telegraph.co.uk/finance/personalfinance/fameandfortune/9232132/The-Archers-Brian-obviously-has-millions.html)

“What has been your best investment decision?

Taking on my financial adviser 20 years ago, on the recommendation of my accountant. He looks after my portfolio, and invests in trusts and tax-free savings plans. I don’t really understand it.

My father said to me when I was young: “Charles, it is not what you know, it is who you know.” The older I get the more I appreciate that advice, whether it is in a financial, professional or medical context.”

Showing an understanding of what value IFAs can achieve, he gives another great answer with:

“Do you keep an eye on your finances on a regular basis?

I keep an eye on them but that is about it because my financial adviser is wonderful. When I signed on with him I said there is only one word that I never want to hear him say. He said: “What is that?” And I said it was “Sorry”. So far he has not had to say that word, even in the recession.”

Most members of the public are comfortable with the basics of financial processes, like paying bills on time or collecting the money they are due, but are generally hopeless at dealing with longer term objectives and the intricacies of the tax system. They are also pretty hopeless at setting expenditure priorities unless these are being influenced by external factors like barely enough to pay the bills or feed the kids. Given a small income surplus, it would tend to be spent on short term “nice to haves” rather than longer term “must haves”.

Where IFAs really score is being able to apply small amounts of surplus cash to your significant long-term advantage, whether it is putting together an effective and efficient life protection package or putting a proper pension together. Members of the public will either under-manage their assets, (say set up a pension in their 30s then ignore it until retirement), or over-manage them, (checking on stock market prices every day). IFAs are trained and qualified to make important decisions on more than just emotional factors.

Please talk to us about what you want to achieve both over the next 5-10 years and your plans about retirement. The advantages should outweigh the cost of advice, if not; it may be time to look for a new adviser.

Contact me with queries
If anyone is looking for general advice, then please write in to the blog and I would be happy to help with anonymous advice posted here. Alternatively, please call us on 0116 253 5600 and ask to speak to an IFA, (Independent Financial Adviser), for a no-obligation discussion.

If you know you need formal advice, have a look at http://www.bankfield.net/ or ask around for a recommendation, it might even be me.

Becoming a Landlord?!

Admin — Tue, 24 Apr 2012 12:01:08 +0000

Back in September 2010, I wrote a blog about the issues around becoming a landlord. The issue has come up yet again for one of my colleagues, so I thought now would be a good time to revisit what I previously committed to print.

This is not a balanced view of the residential lettings industry, this is a series of cautions, warnings and caveats that have kept clients on the straight and narrow:-

Remember this a business, not a jolly jape and that any losses you make are real and coming out of your pocket. As a general rule HMRC will NOT let you offset your property gains or losses with any other gains or losses, so you cannot cross-subsidise. If your property empire cannot stand on its own feet, it will fall and take you with it!
If you already have a property you would like to let, calculate the yield you will get on your property, based on a realistic sale value or the capital cost to you. If the value to you is £100,000 and the income after expenses is at least £7,000, then rental may be a good alternative to selling up. If it is less than 7%, should you really be letting the property? Betting on house prices rising is likely to be a gamble for the next few years, so if the rent does not cover the costs, the property is likely to be an expensive drain of your finances for years to come. You can get guidance on house prices and potential rental values from www.mouseprice.com and other property websites.
As a general rule, houses you want to live in are not good rental propositions. You are looking for the lowest possible capital cost with the highest rental yields, which usually means town centre/estate, high-density housing, not attractive, sprawling suburban villas.
The figure you have the most influence over is the purchase price for the rental property. Rents are going to be what the local market will stand and your influence is limited to making it look clean and attractive; a one bed flat will only ever be a one bed flat, so don’t get carried away with flights of fancy for humungous rents based on a pretty colour scheme or fancy hi-tech gadgets!
If you over-pay for the purchase, you probably will never get the money back, so spend more time on finding the right property at the right price than you spend on choosing the curtains!
Get proper landlord’s insurance, an ordinary householders policy will not cover the perils of tenants and the company is more likely to void the policy than pay you out if the property burns down.
Unless you really know what you are doing, get an agent. Try and get a recommended one as they vary from the brilliant to the worse than useless. Remember, if your gas boiler kills a tenant, it will be you, not them in the dock! Even holding your property in a limited company won’t save you from a manslaughter charge.
Expect void periods, (an empty property with no rent coming in), and include them in your budget. Shorthold tenancies will generally mean you are looking for a new tenant every 6 months, so unless you have a really good plan, you will be scratching around for tenants on a regular basis.
Check whether your agent has a list of approved Trades people. Ask for references, as these Trades people will have your reputation in their hands.
Cash flow is king. More people have gone bankrupt through running out of cash than running out of assets. A forced sale of your housing book by the Trustee in Bankruptcy is not going to line your pockets; the sales prices are low and your mortgage provider will get their money first.
Make sure you have an emergency fund and assets other than just rental property; raising cash by selling houses is expensive, slow and prone to delay and failure.
Don’t become a landlord just to be a fashion victim. Just because your mate in the pub has a few houses doesn’t make it right for you. This is not an easy option; if you don’t employ an agent you will have to do lots of things yourself. If you do employ an agent it will cost you most of your profit, if you don’t, you need to know about deposit schemes, gas certificates, evictions and rent collection as a minimum!
Do your taxes properly. Pay a tax accountant if you are not confident as good advice here can save thousands in tax and make new borrowing for more houses easier.

Most people who get into property find it addictive, so expect it to take over your life if you let it. For many, property offers passive income over an extended period, but this can become a nightmare if not treated as a business.

Often people will start with a few houses, then they will buy small blocks of flats, then they will buy shops with flats above, then move into dedicated commercial property. This transition should also include a move from direct personal ownership of rental property to ultimately the property being held by a limited company, passing dividends to the happily retired owner. We can help with this transition at every stage.

If you know you need formal advice, have a look at http://www.bankfield.net/ or ask around for a recommendation, it might even be me.

Working Capital funding in a Crisis

Admin — Wed, 11 Apr 2012 14:10:43 +0000

When I go to a networking event, one of the standard questions from owners of small manufacturing companies or wholesalers is how do they get funding for working capital?

Before the banking crisis, most small business owners got along with a business overdraft and perhaps a small loan, secured with a “fixed and floating charge” which bumbled along from year to year.

Now, I am getting lots of cries for help as the bank is refusing to renew overdrafts and not granting new loans without taking considerable additional security in the form of “real” property and most likely, a personal guarantee.

For people who have previously traded within their bank conditions, this is seen as a major assault to their dignity, but more importantly, unless they can replace the working capital one way or another the business may fail through over-trading or ultimately just running out of cash.

If as a business owner, you are looking to retire in the coming years, giving up additional security or granting a personal guarantee is absolutely the last thing you want to do, so what are the alternatives? Even if you are not wanting to leave, giving additional security is a major step in the wrong direction.

Sales ledger financing has been around for hundreds of years, being the basis for merchant adventuring in the Middle Ages, but these days it is usually formalised as Invoice Factoring, Confidential Invoice Discounting, (CIDs) or a hybrid of the two. All will advance cash based on issued invoices, rather than waiting for the customer to pay, so the need for additional working capital is greatly reduced.

It is not a panacea for everyone, as some businesses are not suited and others do not have the infrastructure to provide the necessary management information, but almost every business would benefit from having a word with a financial professional like ourselves, as more often than not, a creative solution can be found..

If you are struggling with the cash demands of your business, give us a ring and ask for an initial meeting, at no obligation and we will see what tools in our toolbox may help. We will ask a number of questions and based on the answers will suggest and deliver a solution that will make the best of your business, without delivering you to the Poor House.

The Financial Services Authority does not regulate business advice

If you know you need formal advice, have a look at http://www.bankfield.net/ or ask around for a recommendation, it might even be me.

Consequences; or listening to the radio too deeply!

Admin — Tue, 03 Apr 2012 10:02:29 +0000

Today, I was listening to a programme on Radio 4, which was talking about a perceived failure of left wing politics and a missing cohort of left wing politicians, who would have been born between 1955-1965. (Start the Week; “The death of socialism”, Andrew Marr with Alwyn Turner, Janet Daley, Tristram Hunt and Martin Rowson).

This jangled a few nerves of mine and prompted the odd laugh, especially Alwyn Turner’s new book is called “Things can only get bitter”, about the failure of socialism and the fall out from “New Labour”.

Apparently, for so many of my generation, (I was born in 1963), politics is more of an irrelevance, with culture having more of an impact on daily life than a succession of grey men spouting minor alternatives within a mixed, but essentially free-market economy.

Where my interest is particularly focused is the likely impact of changes to this population cohort, born 1955-1964, as I am one of them! Current political decisions like Quantitive Easing are having a significant impact on pensions and likely pension income once retired. This cohort is one of the largest in terms of numbers and personal wealth, expected to have another 0-15 years in the workplace and 20 years or more as retired.

Changes on the horizon for this cohort that will directly impact retirement income are gender non-specific underwriting, Solvency 2 and the Retail Distribution Review. In order, the impacts are likely to be as follows:-

Gender Neutral Underwriting; following a European Courts of Justice ruling, from the 21^st December 2012, annuity providers, (together with every other sort of insurance), will not be able to use gender as a differentiating criteria. For annuities, practically, men should explore retirement options BEFORE 21^st December 2012 and women should POTENTIALLY delay retirement for a few months. In either case, starting a dialogue with an independent financial adviser before the critical date is highly likely to be a good idea!

Retail Distribution Review; this has been a long time coming and the impact is expected to be a significant reduction in the number of IFAs active in the retail marketplace, (as the qualification level has been raised), and the elimination of commission as a form of adviser remuneration, both due on the 31^st December 2012. Practically, if you need advice you will need to pay for it up front, (which removes access to advice for the less well off and the less motivated), and it will be harder to find an adviser who will be willing to take you on.

Solvency 2; is a European banking measure, where insurance companies and banks will need to be more conservative with both their projections and their balance sheets. This is anticipated to place further downward pressure on annuities, so practically, look at retirement and annuities as early as possible, unless affordability is the major issue, which will therefore dictate a later retirement date.

People need to explore their pension performance and options on a regular basis. How much you have in your pension fund will dictate your income for many years to come, so a bit of regular maintenance is essential. As I have said before in this blog, the price of a good retirement is eternal vigilance; if you have the skills, do it yourself, but don’t ignore it until it is too late.

Thoughts before action

If you are looking to retire in the next year to 18 months, would you be better off going now or leaving it longer? If you have an IFA ask them, if not, find one and have an initial discussion.
Are you in the right retirement funds for you? If you don’t know, then you need to find out or get someone to do it for you.
Do you know when and how much your State pension will be? If not, talk to the Pension Forecasting Team on 0845 300 0168, giving your full name, date of birth and national insurance number. A few weeks later you will get a statement giving your state pension date, amount of basic state pension and whatever state second pension you will get.
If you are not going to get a full State pension, is it worth paying some voluntary NIC contributions?
Remember, taking retirement income does not mean you have to stop work. Once you have a pension in place, the amount is certain, (or at least predictable), so taking a pension early will “fix” your benefits. Once the money is in your bank account, less any tax due, it cannot be taken off you, even if you drop dead!

If you know you need formal advice, have a look at http://www.bankfield.net/ or ask around for a recommendation, it might even be me.

Still using your bank for investment advice?

Admin — Thu, 29 Mar 2012 09:20:10 +0000

Today, the various financial papers and websites made a song and dance about the level of financial services complaints in the second half of 2011. A typical article can be found at:-

“Over 3,284 consumers complained about Barclays Bank over investments to the FSA between July and December 2011, according to complaints data released this morning. The top ten firms for investment complaints, which included, Santander Lloyds Banking Group, and Zurich attracted around 17,000 claims in the period.”

http://www.citywire.co.uk/new-model-adviser/barclays-tops-fsa-investment-complaints-table/a578311?ref=new-model-adviser-todays-news-list

So, picking over the bones, what can we derive from this? Frankly, not much as unless we know how many transactions were undertaken each half year, the total number of complaints is meaningless. Taking this idea a stage further, the Telegraph offers the following:-

“A spokesman for Lloyds said that when complaints were considered per 1,000 customers its complaints record compared favourably with other banks. In total it received 1.5 complaints per 1,000 customers. It said RBS and NatWest received four per 1,000 customers, Barclays received 3.7, while Santander received 4.6 for every 1,000 customers.”

http://www.telegraph.co.uk/finance/personalfinance/consumertips/banking/9171152/Barclays-still-attracts-the-most-complaints.html

So, comparing complaints to customers suggests Santander is the worst, although my wife seems content so far with cash ISAs and a current account.

I have said it before and I’ll say it again, buy investments and protection products from an independent specialist, not a tied bank. Banks are specialists in current and deposit accounts, not investments or protection insurance!

If, as a member of the public, you feel the need to buy an investment or protection insurance, start at the Money Advice Service website, www.moneyadviceservice.org.uk, where you will find completely impartial guidance, simply complete the health check, https://healthcheck.moneyadviceservice.org.uk/? and bring the printed sheets to me. That way, we will both know what we are trying to achieve!

If that all seems like too much trouble, ring the office and ask for an initial appointment, without any obligation. We won’t “fit you up”, “do you up like a kipper”, or “tuck you in like a sardine in a tin”; it is easier for us to do a good job, once than a bad job several times.

If you know you need formal advice, have a look at http://www.bankfield.net/ or ask around for a recommendation, it might even be me.

Pension Income Choices: the full list

Admin — Tue, 20 Mar 2012 19:36:50 +0000

Now might be a good time to summarise the options for any potential retirees, with comments about the fund value required to make any option worthwhile and the principal characteristics of the options.

If you are a potential client, use this as a checklist of possible options and as a way of managing expectations in terms of income, complexity and advice cost. Not all options will apply to you, as some will eliminate themselves, but please, get professional advice as the cost will be negligible compared to the potential cost of making an uninformed decision in what are complicated situations

In summary, the pension income options are, smallest total pension fund to largest pension fund:

Trivial Commutation: £1 to £18,000 fund, taking the whole fund as cash, with 25% tax free and the balance then taxed as income.

Lifetime Annuity: £1 to £1.8Million, Use the fund, less up to 25% tax free cash, (Pension Commencement Lumps Sum, PCLS), at your discretion, to buy an annuity for your retirement. This could be from the original provider, (if the fund is less than £5,000), or from another provider using the Open Market Option, (OMO) or Immediate Vesting Personal Pension, (IVPP). These acronyms are a perfect example of how and why your pension options can be technically complicated.

Fixed Term or Temporary Annuity; £10,000, after Tax Free Cash to £1.8Million. An annuity for 5 years or to age 75, with a return of some capital to either purchase a further lifetime annuity or use one of the other options to fund your continuing retirement.

Income Withdrawal: £50,000 to £1.8Million, the fund remains invested but income is taken up to the new statutory maximum of 100% of GAD, (Government Actuarial Department). This will equate to approximately a single life annuity at the entry age. For many providers and advisers, the entry fund value is £100,000, as small funds will be excessively penalised by fixed fees and the FSA is watching.

Scheme Pension: £200,000 to £1.8Million, this comes with several variations, the most common of which being that the pensioner, you, has no discretion and you get what the trust deed says you will get, just like an occupational pension scheme. If you have £200,000 of gross pension fund available, you can set up your own Scheme Pension with rules designed to allow you to provide a spouse’s pension, pensions for dependents and potentially pensions for children and grandchildren, if they are included within the scheme before your demise.

Flexible Drawdown: Around £100,000 to £1.8Million, once you have demonstrated a guaranteed income of £20,000 per annum from the State Pension, Lifetime annuities and Scheme pension, you can take what you like from your remaining pension fund.

More than £1.8Million; if you have more than £1.8Million in pensions assets then either you must have some form of protection in place or you are looking at a large tax charge on taking your benefits. In either event, professional advice is likely to be beneficial; bearing in mind that the Lifetime Allowance is due to reduce to £1.5Million, so you need to explore your options now.

Consequences

Coming back to Earth now, you can see that your pension income options are dependent on how much fund you have available and your ultimate life plan. For the majority of the working population, with pension assets of between £1 and £100,000 the only game in town is Lifetime or Fixed Term annuities. As a very rough measure, work on a 5% return on pension fund value at age 65. For a better estimate, go to http://tables.moneyadviceservice.org.uk/Comparison-tables-home/Annuities/Compare-Annuities/ and complete the details. For an enhanced or impaired, (lifestyle or health issues), life annuity, there is no substitute for a formal application; we can do that with a common quotation form across all providers simultaneously.

For people with over £100,000 in pension assets, income withdrawal is a serious alternative, but only for those who are not terrified of investment risk. For the terrified, an annuity has much to commend it, but the pension asset will be lost to the annuity provider.

If you are determined to leave assets to dependents, spouse and issue, (the children), then unusual annuity options like value protection or some form of income withdrawal or scheme pension will be necessary, but remember that any proceeds after your demise will be taxed at 55%.

Advice Costs

In the oncoming regime of RDR, (Retail Distribution Review), and fee paying clients, think in terms of hours work for an estimate of costs, but please remember, I would concentrate on the potential lifetime cost of getting it less than perfect. Under RDR, rates will vary between advisers, but at Bankfield we are always keen for an ongoing relationship.

Trivial Commutation: DIY or a couple of hours to complete some forms properly

Lifetime annuity: two to seven hours, including checking for availability of enhanced annuities and selecting options.

Fixed Term or Temporary Annuity; as above, but the compliance required is onerous, so expect it to be on the higher end of the spectrum

Income Withdrawal: Set up, five to ten hours, investment reviews as often as agreed, two to three hours, one or more times a year and a tri-annual statutory review for maximum income, two to three hours.

Flexible Drawdown; as above, but without the tri-annual review, but some time to assess guaranteed income and certificate it.

Scheme Pension: set up, five to ten hours but this has to be open ended if you are looking for a novel trust deed or unusual features.

As a guiding rule, complexity always costs, so as soon as you move away from an annuity the advice costs inevitably rise. At present commission terms are available for annuities, so for many people commission will be the best way to pay for one-off advice.

As a self-confessed cynic, I have seen a number of new clients who have been placed into drawdown, where I believe this is to preserve an adviser’s income stream rather than in the client’s best interest. If you are chasing income and have any medical conditions, an enhanced annuity is likely to maximise your income. If you want to pass capital down the generations, then drawdown is likely to be the best solution.

For anything more than one-off annuity advice, you need a good dialogue with your adviser, so make an agreement for advice and execution costs and stick to it. Whether you pay by fee, agreed adviser fee or a percentage of the fund value is ultimately irrelevant if the advice is good.

If you know you need formal advice, have a look at http://www.bankfield.net/ or ask around for a recommendation, it might even be me.

Into the ISA Season

Admin — Fri, 09 Mar 2012 12:18:39 +0000

This is the time of year when most IFAs should spend a bit of time contacting their investment clients and asking them if they can contribute any more to their existing ISAs and then ask about setting some money aside for next year’s. An ISA is one of the few tax concessions available, so if you can utilise it, you should!

For 2011/2012 the ISA limit is £10,680, with up to 50% held in a cash ISA

For 2012/2013 the ISA limit is £11,280, with up to 50% held in a cash ISA

A couple of things worth bearing in mind:

Firstly, you don’t have to stay with an existing provider, you can move provider to get a better rate on your money, but you must arrange for it to be transferred, not cashed in then re-invested, as this will waste your annual allowance. Not all providers will accept transfers in, so be wary of pushy personal bankers who don’t understand the detail.

Secondly, if you own shares or unit trusts outside of an ISA, you can transfer them in at their current valuation. This is often described as re-registration or a transfer-in, but don’t let the jargon get in the way of a good idea. Once you have your investment inside an ISA, any withdrawals will be tax-free and there is no Capital Gains Tax to pay on encashment. If you have old shares for which you don’t have the paperwork to prove purchase costs, this is a neat and tidy way of setting up shares for a disposal later. It will use up your annual allowance, but some of my clients have found it useful in the past.

If you want to do anything out of the ordinary with an ISA, using an independent financial adviser will keep you away from the standard pitfalls. Remember, you can put more than just cash into an ISA, if you own an “ISAable” asset, you can slide that into an ISA in lieu of cash, say BT shares inherited from Auntie Maud or unit trusts from Uncle Zeb, but you may need my help for it to happen without a panic.

The value of investment and the income from them may go down. You may not get back the original amount invested

If you know you need formal advice, have a look at http://www.bankfield.net/ or ask around for a recommendation, it might even be me.

Too healthy for an enhanced annuity?

Admin — Tue, 28 Feb 2012 11:03:45 +0000

Over the last few days I have had a number of bizarre conversations with a client and their enhanced annuity provider, as the annuity provider had sent around a nurse to carry out some health screening to confirm the information provided is correct to set up the annuity.

Firstly the nurse had done a basic test to establish the presence of nicotine, as the client was declared as a smoker. The client failed that test, as he had not smoked for several days as he had a cold and was fighting it off. That he had some 5,000 cigarettes in his house from his recent trip to Spain meant that the nurse reported back that he WAS a smoker.

Then she asked him to show her his medication for blood pressure and high cholesterol and again my client was in difficulty – he had run out of prescription medication while in Spain and was due in his doctors surgery the following week for a review.

As can be imagined, the annuity provider took a sceptical view of the medical information on the annuity form and said that the annuity rate would be under review if the client was unable to provide evidence in the form of a repeat prescription.

A trip to the doctors later, the client was able to provide a repeat script for a cholesterol medication, but not a blood pressure one as his previous diet and weight changes meant his blood pressure was normal and no medication was necessary.

The provider has now accepted the smoker and high cholesterol evidence, but reduced the annuity by £27 per annum as the blood pressure evidence was not provided. The client and I have discussed asking for a full General Practitioner’s Report, (GPR), but that can be a “double edged sword”, so we’ll accept what we are offered!

For people about to purchase an annuity it does raise a few issues:-

Don’t improve your lifestyle BEFORE you go for an annuity. If you smoke, drink, overeat, have an excessive fondness for doughnuts or cake, don’t give it up just yet!
Get your doctor to test you for diabetes, high blood pressure and high cholesterol and be honest about your smoking and drinking. What your doctor puts on any GPR will have an impact on your annuity.
If you have had medical interventions in the past, collect the details so we can fill the forms in correctly. Old issues, even if considered cured can have a positive bearing on your annuity rate.
Occupation also has a bearing; so if you have been a miner, chemical worker or any other potentially hazardous occupation in the past, make sure I know, even if it was 20+ years ago.
Don’t ever be dishonest with an insurance company; it can cost you more than money. “Don’t know” is a perfectly acceptable answer and we can ask for a GPR to fill in the medical gaps if needed.

If you know you need formal advice, have a look at http://www.bankfield.net/ or ask around for a recommendation, it might even be me.

Making the customer comfortable

Admin — Tue, 21 Feb 2012 10:27:04 +0000

Just had a meeting with a client that I first met last year when he was looking for an annuity as his 65^th birthday was early January. He just wanted to talk about the capital he had received as part of his pension commencement lump sum, (tax free cash), as he wanted to invest that for the medium term, hopefully to beat inflation.

The nicest thing he said was that he had been comfortable with the process and that I had answered all of his questions, often before he had asked them!

He had picked Bankfield off the Internet but was initially apprehensive about both the advice process and the potential costs. After the initial meeting at the client’s home and my early responses, he was both reassured and encouraged to make a series of better informed decisions than his initial knee-jerk reactions.

As IFAs, it is vital that we offer advice AND education to both our clients and potential clients as there is no personal help and advice out there than does not have an agenda likely to be at odds with the actual client needs.

Education needs are met, at least in part, by the Money Advice Service, www.moneyadviceservice.org.uk, but this cannot give regulated advice, nor does it actually execute anything, so it is only a source of information.

The client mentioned above and others in my experience, really value the ability to have a 2 way conversation with a human being who can tailor the conversation to fit the needs, desires and vocabulary of the person who is actually paying.

The proof of this pudding is like many other IFAs, I get quite a number of referrals from existing clients, happy with my recommendations and performance and are keen for their friends and relatives to benefit from that same quality of advice and support.

If you know you need formal advice, have a look at http://www.bankfield.net/ or ask around for a recommendation, it might even be me.

Auto-Enrollment is coming, ready or not!!

Admin — Sun, 19 Feb 2012 12:02:40 +0000

An article on a non-financial website caught my eye a little while ago as the subject is dear to my heart and I feel it deserves a wider audience.

http://www.theregister.co.uk/2011/09/05/half_of_workers_unaware_of_pension_auto_enrolment_reforms/

The Register is an IT orientated website and usually you can expect the discussion to be robust, well informed and sometimes rather humorous, but sadly I feel disappointed by the responses in the comments section. One of the more sensible comments was:-

Pensions just don’t make sense as a concept any more #

Posted Monday 5th September 2011 09:52 GMT

They were fine when you worked for one company your entire life and retired at 65 and died at 67. They don’t work any more. Yes, save, but don’t tie it into an annuity, keep it handy, you’ll never know when you may need it.

Old idea is old. New idea please – one that keeps track with the notion that I may live for 20-30 years AFTER retirement?

I think I understand what the writer is getting at, but I don’t agree that pensions make no sense. Once money is in a scheme you cannot spend it until 55 at least, but these days you don’t have to buy an annuity. There are very few ways you can save without paying tax on the earned income used to pay for it but pensions allow you to put in money without any deductions for tax or gives a refund if your premiums are already tax paid!

Agree #

Posted Monday 5th September 2011 10:11 GMT

I wish I could use the cash in my pension to pay off the mortgage on the family home. But apparently I’m not allowed to access my pension savings, the reason being ‘just because…’.

The rest of the explanation is presumably ‘… because we’ve gambled all your savings on the stock market, and spent it on bonuses for us, so there’s none left for you sucker’.

At 55, you could use the tax-free cash, (25% Pension Commencement Lump Sum), to pay down your mortgage. If I was your adviser I’d possibly suggest it if it made sense for you and your circumstances. That you cannot now suggests you are too young and the government is worried you’ll spend it on junk you don’t need, (like the rest of the feckless population!).

I really like the next contribution as it explains quite clearly the choices to be made:-

I’m glad I bit the bullet.. #

Posted Tuesday 6th September 2011 09:16 GMT

…sure I got the feeling I was being ripped off for all the years I paid into a pension but I am now retired on about about 60% of my final salary. I remember thinking when I was paying in around 20%-ish of my salary “Is this really worth it?”, especially when friends were going for fancy holidays three times a year and buying a new flash car every 3 years – while I went away once a year and made my cars last 10 years. But I stuck with it and now I feel relatively comfortable (definitely not “well off”) and secure. I also stretched to pay off my mortgage early.

Friends who did nothing are now in a bind, they have the minimum company pension (around 15-20% of their final salary and are wondering how they are going to survive. I retired early (I had just about enough of the company I worked for) – some of my friends will have to slave on to the bitter end of their 65th birthdays and then even beyond if they want a reasonable lifestyle.

Would I have done anything different? – probably. I should have diversified – some into the company pension scheme and invested some in property – and tried to invest even a bit more than I eventually did (say 25-30% of my income).

Sorry if all this seems a bit of a preach or smugness but I was just lucky. I didn’t understand this pensions stuff – I just stuffed some money into it and got on with my IT’ing around the world. But suddenly one day you discover – without warning it seems – you are retired and you have no more salary coming in – shock horror. What must have is a plan, any plan, maybe a pension, property, a croft in the Shetlands -whatever – but it must be a plan! When you are in your 30′s or 40′s it seems that you will go on working for ever – you are everlasting, you are invincible, but it does end, and end suddenly.

So there you are; you have a choice, enjoy life beyond your ultimate means or save a bit!

Now for a bit of life planning;

1. Save yourself an emergency fund,

2. Then get out of debt as fast as possible, (don’t worry excessively about a small mortgage, think of it as a rent substitute),

3. THEN save for a pension.

Use a bit of intelligence, so if your employer is offering to match contributions or pay in more, take them up on the offer as it is as near as you will get to free money, even if it is not exactly at the right time.

For a very small minority a pension is a waste of time and money, but this minority will typically be dependent on state benefits until they die. If you are happy with that thought, then I am no use to you; if you have loftier ambitions, I can save you both money and effort.

Risk Warning: A pension is a long-term investment and the fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. The basis of pension tax relief is dependent on personal circumstances.

If you know you need formal advice, have a look at http://www.bankfield.net/ or ask around for a recommendation, it might even be me.