Financial Planning, Pensions Advice, Financial Adviser Dunfermline, Fife, Edinburgh and Central Scotland

Wednesday 19th June 2019

Are you thinking about purchasing an Annuity to fund your retirement lifestyle? It’s crucial to understand the product and shop around for the best deal as research suggests that many retirees could secure a better income.

An Annuity is a way of creating a guaranteed income throughout retirement if you have a Defined Contribution (DC) pension. Should you decide it’s the right option, the money accumulated in your pension is used to purchase an Annuity. Typically, the money paid out from an Annuity will be linked to inflation, maintaining your spending power throughout retirement, though this isn’t always the case.

In the past, an Annuity was the most common way to access pension savings. However, since the introduction of Pension Freedoms in 2015, taking a flexible level of income has grown in popularity. While more pensions now enter Flexi-Access Drawdown, there are still advantages to choosing an Annuity. For many, the security of a guaranteed income provides peace of mind.

Of course, there are drawbacks to weigh up too.

Among the downsides of purchasing an Annuity is the inflexibility. Alternatives to creating a retirement income may allow you to adjust your income, reflecting differing income needs as you go through retirement. However, an Annuity will provide you with a fixed income that won’t change. For some, this inflexibility will mean an Annuity isn’t the right option for them.

It’s important to remember that if you have a DC pension, you don’t have to select a single way to build a retirement income. If some level of flexibility is a priority, you could use a portion of your savings to buy an Annuity, accessing the remainder flexibly. This hybrid approach can provide you with a reliable, base income to offer peace of mind and allow you to adjust income when needed.

Finding the right Annuity for you

There are many different providers to choose from when purchasing an Annuity. It can make searching for the right product for you difficult. However, it’s an important task and one that’s worth investing some time in; after all, it will affect your income for the rest of your life.

According to research from Just Group, up to two-thirds of Britons going into retirement could receive a higher income, affording a more comfortable lifestyle.

One of the key factors influencing this figure is that providers aren’t consistently asking retirees about their health and lifestyle. Certain health issues could qualify retirees for an Enhanced Annuity, which would pay out more. For example, you could receive a greater income if you have high blood pressure or cholesterol. The full impact would depend on your personal circumstances and the provider chosen. However, figures from Hargreaves Lansdown can give you an idea of the difference disclosing health issues can make. A £100,000 pension is estimated to provide an annual income of:

  • £5,456 for someone with no health issues
  • £5,477 for someone with high blood pressure and cholesterol
  • £5,930 for someone who smoked 10 cigarettes a day
  • £6,276 for someone who is diabetic
  • £6,618 for someone that had previously had a stroke

Of course, even if you don’t have health issues, it’s important to shop around. The rates offered when purchasing an Annuity can vary significantly between providers.

Five steps to take if you’re considering an Annuity

1. Speak with a financial adviser: A financial adviser can help guide you throughout the process of purchasing an Annuity, from the initial point of seeing if it’s right for you. By seeing how your income needs will change throughout retirement and getting to grips with whether an Annuity is right for your circumstances, you can have greater confidence in your decision.

2. Understand the different Annuity products: There are many different types of Annuity products available, so it’s important to understand which one would suit you. For many retirees, a Lifetime Annuity is preferred, this would pay a defined income until you die. However, there are fixed Annuities too, which will be an income for a defined period of time.

3. Don’t make quick decisions: When you’re searching for an Annuity, it can be tempting to make a snap decision when you’re offered a rate that seems attractive. However, take a step back and give yourself some time to think. Once you’ve purchased an Annuity there is no going back, so it’s important to make sure you’ve secured the best deal possible.

4. Secure multiple quotes from providers: With two-thirds of retirees potentially receiving a lower income due to choosing the wrong deal, securing multiple quotes to compare should be considered a critical step. There are comparison tables available online that can help you with the initial research. Deciding on the type of Annuity product you want first can help you gather comparable results.

5. Explore other options: An Annuity used to be the most common way to create a retirement income. However, retirees today have far more choice and different products available. Be sure to look at the alternatives before you make a decision to proceed. You may find that a more flexible income is needed when you’ve considered your aspirations.

To talk about building a retirement income that suits your lifestyle goals and savings, please contact us.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, 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. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

In the past, retirement may have been associated with slowing down and taking it easy. But that’s no longer the case. Thousands of retirees are looking forward to giving up work to enjoy an exciting pace of life and gain new experiences. With more freedom and choice than ever before, it’s becoming more important to plan carefully for the retirement you want.

When Pension Freedoms were introduced in 2015, those approaching retirement age were given far more flexibility in how they create an income. As the meaning of retirement for each person is different and evolving, this greater flexibility allows more people to achieve their aspirations. Whilst your parents or grandparents may have been focussed on kicking back and spending time with family, these may not be your top priorities.

In fact, research conducted looking at how Pension Freedoms had affected retirement in 2017, suggested that relaxation was often far from the minds of retirees.

A survey from LV= found that half of retirees find the new phase of life exciting, with discovering new skills and travelling further afield at the top of their retirement wish list.

  • 64% of those that stopped working in the years following Pension Freedoms, said it opened new opportunities for them
  • 55% invested time in hobbies
  • 46% took the opportunity to holiday in places they hadn’t visited before, with the Caribbean, Australia and cruises proving a popular choice
  • 20% devoted time to learning new skills

What does this mean for your income?

Traditionally, expenditure has decreased as you leave the world of work and gradually over time as you settle into retirement. However, with more retirees now looking forward to embracing opportunities further afield, it’s a trend that could change.

This will depend entirely on what your plans for retirement are. If you’ve been envisioning grand plans of travelling to new destinations, keeping your skills up to date or investing in a hobby, you could find your outgoings each year actually increase. If your retirement goals follow this modern approach it means you’ll need to take a far more active role in managing your income throughout the length of your retirement.

A big part of this is how you’ll access the money saved into pensions and when. Under Pension Freedoms, most people can access their pension from the age of 55 onwards. You’re free to choose at which points you’ll make a withdrawal. However, this is just the start of the decisions you’ll need to make. Would your retirement plans benefit if you:

  • Made a lump sum withdrawal
  • Access your pension flexibly throughout retirement
  • Purchase a guaranteed income using an Annuity
  • Or a combination of the above?

There are pros and cons to each option, but the key thing to keep in mind is how they could fund the retirement lifestyle you want.

Setting out your plans

With the above in mind, it’s important to set out your plans as you approach the milestone. Whilst these aren’t set in stone it’s an exercise that can help you understand how your income needs will change over the course of retirement and whether your aspirations match up with the financial provisions you’ve made.

Without a plan, retirement can offer much but fall short of expectation. Often, retirees discover they’re in a better position financially than they thought when all assets are considered. Without taking the time to assess what you want and how to achieve it, some may believe that attainable aspirations are out of reach.

Alternatively, flexibly accessing your pension presents the very real risk of running out of money. Not understanding that there could be a shortfall, could leave you financially vulnerable in later years. Recognising this during the planning phase gives you a chance to adjust plans accordingly or take action to make up the gap.

Planning ahead has other benefits too, for instance:

  • Giving you confidence in your retirement finances
  • Planning for unexpected events
  • Considering the potential cost of care
  • Estate planning

Balancing retirement aspirations with your financial provisions can be difficult and there are many questions to answer, from how long your pension will need to last to the most efficient way to access it. Whatever your aspirations, these should be placed at the centre of your retirement plans. If this is an area you’d like support with, please contact us.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, 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. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

Some retirees are finding themselves asset rich but cash poor, impacting the lifestyle achieved. It’s a trend that’s led to an increasing number of people using Equity Release products to unlock wealth currently locked away in property. If you’re looking for ways to boost your retirement income, Equity Release could be an option that helps improve your overall lifestyle and financial security.

Equity Release is the term for a range of products that allow you to access the wealth that’s currently held in property. Usually, it’s only available for those aged over 55 that own their home, you don’t always need to be mortgage free. The most common Equity Release product is a Lifetime Mortgage. This can pay out either a lump sum or several smaller payments over time. There are multiple products to choose from if you’re interested in Equity Release, often the interest will be rolled up so repayments aren’t required, but there are some that allow you to repay interest and/or the capital.

Figures from the Equity Release Council revealed that for every £1 of savings accessed via flexible pension payments, 50p of housing wealth is unlocked. Data shows in 2018, total lending activity through Equity Release grew for the seventh consecutive year, reaching £3.94 billion, following a 29% year-on-year rise. The trend indicates that for some retirees Equity Release is an important part of financial security.

Five reasons Equity Release is rising

There are many reasons why Equity Release has become more popular in recent years, among them are:

1. Property price rises: One of the key factors influencing the popularity of Equity Release is property prices. Over recent decades, property prices have soared. It means that many retirees that have paid off their mortgage are finding their home is worth more than anticipated. The average home in the UK is worth around £226,000. It’s a sum that could help you achieve retirement aspirations when coupled with pensions, savings and investments.

2. Flexible lifestyle: Retirees today often desire a lifestyle that is more flexible than previous generations. As a result, having a fixed, regular income throughout retirement may not suit retirement objectives. Equity Release allows homeowners to increase their income at points either through a lump sum or over several small payments. It can be a tool to help you tick off one-off expenses, such as travelling or renovating your home, or increase long-term income.

3. A desire to help younger generations: As younger generations struggle financially, more parents and grandparents are choosing to lend financial support. As life expectancy rises, an inheritance is likely to come too late for many striving to reach significant milestones, such as purchasing their first home. Equity Release is one option for accessing some of the wealth you’ve built up in property to provide support to loved ones at a time when they need it rather than leaving a home as an inheritance.

4. Increased number of products: There’s a growing number of Equity Release products available, leading to a more competitive market and lower interest rates. According to the Equity Release Council, there were just 58 product options available in 2016. This figure has more than doubled in two years, reaching 139. As a result, the products on offer are more likely to appeal to more retirees than previously.

5. Product diversity: It’s not just the number of products that have increased, there’s a wider range of products types. Just a few years ago, there was little difference between the majority of Equity Release products offered, now there’s more choice that can help give you peace of mind. For example, many products now offer a no negative equity guarantee and there is a growing range that allows you to pay back the capital borrowed. Increased diversity naturally means that you’re now more likely to find an Equity Release product that suits your goals and concerns.

What is Equity Release being used for?

One of the attractive features of Equity Release is that the money accessed can be used in any way that you want. From supplementing general lifestyle costs through to a once in a lifetime holiday, home renovations or paying for long-term care. It’s an option that gives you flexibility.

However, you need to ensure that your plans for the money secured through Equity Release is sustainable, whether you take a single lump sum or want to make multiple withdrawals. There is only a finite amount of capital that can be withdrawn from your home, so it’s important to think about how you’ll use it to achieve your aspirations before making a decision.

If you’re considering Equity Release, it’s also important to be aware of the drawbacks and alternative solutions first. It’s not an option that’s right for everyone, contact us to discuss whether Equity Release could help you.

The care we may need later in life isn’t something we often think about. But when prompted, most of those over the age of 55 have a clear idea about their preferences. Yet, a lack of financial planning could mean that those preferences aren’t possible.

Research conducted by Key unsurprisingly found that the majority (77%) of over-55s would prefer to receive care in their own home, either in their current home (57%) or in one deemed more manageable that they’d purchase in the future (20%). While receiving care in your own home allows you more freedom and is a cheaper option than a residential home, it does still come at a cost.

The cost of care in your own home can vary enormously. It’s a figure that’s influenced by a number of factors like your health and location. This type of care is often paid for on an hourly basis that seems small initially but can rapidly grow. Even if you require just two hours of support a day at £15 an hour, it’ll cost almost £11,000 annually. If it’s a cost you’ve not factored into your financial plan it could leave you struggling or having to cut back in later years or not receiving the level of support needed.

Despite the burden of paying for care often falling to the individual, the research found that just 20% of those over 55 have made financial provisions to pay for long-term care. When asked about funding care, more than a fifth (21%) stated they were concerned about how they would meet costs and a further 15% said they have ‘no idea’ how they would pay the necessary bill. Without forward planning, it may mean that you’re not able to secure the preferred type or level of care and make the process more stressful.

Planning for the unexpected

While you may have a clear idea about the type of care you’d prefer if needed, it’s important to plan for the unexpected. No one wants to think about the possibility of being unable to care for themselves. But if something should happen, what would be the solution? You may be able to rely on family and friends to some degree, however, in other cases, residential care may be necessary.

If you’ve only made plans with home care in mind, how would your finances be affected if further care were needed? Would you be able to pay for the cost of a nurse if it were required? Full-time care costs typically start at around £30,000 per annum, but if round the clock or specialist care is needed the figure can easily be much higher. Planning for potential care needs can provide peace of mind that future care will reflect your wishes and priorities.

Deciding what you’ll want to happen to the funds earmarked for care if not used is also important. Perhaps you would want it to form part of an inheritance, in which case potential Inheritance Tax liability should be considered. Alternatively, it could provide you with additional cash to fund your general lifestyle in later retirement if you’re still in good health.

Who pays for care?

There is often some confusion around when and how much individuals must pay for their care. Most people must at least partially fund their care costs as government help is means tested.

If you have capital worth over £23,250, you’ll be responsible for paying care fees in full until capital is depleted below this point. For those with capital between £14,250 and £23,250, the local council will fund a portion of the total costs, but individuals will be responsible for paying the remainder. Your total capital will take into account a range of assets, including income, savings and the value of your property. As a result, it’s likely that you’ll be paying at least a portion of your care costs should you need support.

With this in mind, it’s prudent to create a financial plan as soon as possible, setting out how you’ll pay for potential care bills. It’ll help you organise your assets and understand the best way to access them should the need arise. It also means you can rest assured that future care needs will be taken care of, allowing you to enjoy your retirement years without concerns about future unexpected care bills.

If you’d like to ensure your financial plan considers potential care needs and your preferences, please contact us. We’re here to help you understand how your pension, savings and investments can be used to achieve your ideal retirement.

While you may have achieved financial security, some of your loved ones may still be at a point in their lives where they’re struggling. With stagnant wage growth, rising living costs and fewer generous Final Salary pensions on offer, many adults are finding it challenging to secure their financial future.

It’s natural to want to provide support to your loved ones when they’re struggling. However, it can be difficult to know what the best course of action is to have a lasting, positive impact. Those affected by financial insecurity often believe that it’s impossible their situation will improve and aren’t sure where to turn. Research from Aegon found:

  • 31% admit their finances control their lives
  • 27% feel unprepared for a financial emergency
  • 36% said they wouldn’t be able to handle an unexpected expense
  • 41% are concerned that the money they have now won’t last
  • 30% feel unable to enjoy life as a result of financial insecurity

Kate Smith, Head of Pensions at Aegon, commented: “Our research paints a worrying picture of the UK’s financial health and individual’s ability to manage their money. Good financial management sits hand in hand with positive financial wellbeing and it is concerning to see so many people are unable to live life to its fullest as a result of how they’re managing their money.”

While every situation is unique and financial worries are complex, there are often ways you can help, from offering financial support to advice.

Be on hand to offer support and advice

It can be difficult to offer advice to loved ones, particularly if money is a sensitive subject. But being on hand to offer guidance when they ask can be beneficial.

Not only does it let them know you’re there for them, but it gives you an opportunity to share tips you’ve picked up. When offering advice, listening to what they say and trying to understand their situation is important. Appearing overly critical of their choices could mean they’re reluctant to seek your advice in the future.

Help them create a financial plan

Often a lack of confidence holds people back from taking steps that could improve their financial security; this is where a plan can help. Starting with the immediate, such as a weekly budget, you can build from here to understand their future financial security, for example, how they’ll create an income in retirement or pay off the mortgage.

You can’t make a loved one choose the path you would, but working with them to set out their finances now and in the future can help them understand your perspective.

Emphasise the importance of balancing short and long term

When money is tight, it’s often the present that’s focused on. However, this can come at the price of future financial security. Opting out of a pension scheme to ease the pressure of household bills now could mean years of struggling once retired. Keeping this in mind is important when weighing up financial decisions.

Looking at the long-term gains of planning for the future can encourage loved ones to follow advice too. Pensions are a great example of this as they’ll usually benefit from tax relief and employer contributions in the short term while generating investment returns in the long term.

Provide financial support

Of course, providing financial support may be an option too. Whether regular financial support would help cover essential areas or a lump sum could give loved ones the deposit to step on to the property ladder, it could boost their security significantly.

If this is something you’re considering, be sure to understand how it’ll affect your personal finances and long-term security too. If you’re worried about how taking money out of your income or other assets will have an impact, our cashflow services can give you the confidence to move forward. By showing the impact delivering financial support will have on your wealth in the short, medium and long term, you’ll be in a better position to make a decision that suits everyone.

Suggest where financial advice can benefit

When struggling financially, professional advice is often dismissed as too expensive and of little value. However, financial planning can give greater confidence in the steps being taken. Money has a huge impact on overall wellbeing and understanding that you’re on the right track for a secure future can improve health and outlook on life.

Suggesting to your loved ones where financial advice can be useful, for example, when purchasing a house or considering where to invest, can give them guidance at key points in their life.

For many, early retirement is a dream. If giving up work before you reach State Pension age is something you’re hoping to achieve, planning as soon as possible can help turn it into a reality.

Retirement at any stage requires planning and preparation. But if you’re hoping to give up work sooner than the traditional retirement age, it can take a little extra preparation to ensure you’re on a financially secure path. Planning means you can start the next chapter of your life confident in the provisions you’ve made, ensuring you enjoy it to the fullest.

If retiring sooner rather than later is something you want to pursue, here are five reasons why preparing now is crucial.

1. Ensure your plans are realistic

You might want to retire on your 50th birthday, but how realistic is that goal? This will come down to a range of factors, but namely the financial provisions you’ve made so far. When you retire early your money will naturally need to support you for a longer period of time. Even adding just five years to your retirement may mean having to cut your income significantly and missing out on the lifestyle you want; would it be worth the compromise?

The earlier on in the process you start looking at how finances match up with your desired retirement date the better. If you’re not putting enough away, it gives you an opportunity to reassess your priorities and increase the amount you’re putting aside where necessary. Regularly coming back to your plans to ask, ‘is it realistic?’ may give you the reassurance to forge ahead.

2. Understand your motivations

Retiring is an important milestone that many look forward to. However, as you approach your planned retirement date asking what your motivations are for giving up work is important.

Often people look forward to retirement because they’re stressed or unhappy in their current position. However, giving up work altogether can be a big step. For some, simply changing employment can lead to a work-life balance that best suits them. Others may find that taking a phased approach to retirement, such as continuing part-time or taking a freelance approach, can deliver the lifestyle that suits them.

It’s also an opportunity to think about the desired lifestyle you want to achieve when you do retire. It’s a process that can create a baseline income you need to achieve your goals, as well as ensuring your priorities are aligned.

3. Decide how you’ll use your assets

If you’re retiring early, deciding how and when you’ll use your assets to create an income is important. Often when retiring sooner than the traditional point, people are worried about where their income will come from. This is a step that can help alleviate some of those concerns.

For most, a pension will be the key source of income in retirement. However, depending on when you choose to retire, it may not be accessible. Defined Contribution schemes can usually be accessed from the age of 55, with Pension Freedoms providing several different options to do this. If you have a Defined Benefit pension, the date that you will start receiving payments from this will be pre-defined by the scheme.

Other assets, such as savings and investments, may provide you with an income before this point or supplement pensions. Planning how you’ll fund retirement can help ensure your lifestyle is sustainable, tax efficient and is in line with your goals.

4. Understand how your wealth will change

When in retirement, your wealth is likely to reduce as you switch from earning an income to spending your savings. The sooner you engage with what this means, the better. Cashflow planning is an excellent way to do this, allowing you to visualise how income and wealth may change over time depending on your decisions.

First, it will allow you to see how retiring early will affect your income throughout your years. You no doubt already have plans once you have more free time on your hands; will your retirement income allow you to do this? If you lived longer than expected, would you still have enough to support yourself?

Second, you can see how your assets will deplete over time under different scenarios. If leaving loved ones an inheritance is a priority, this can help you see what may be left behind to beneficiaries, for example.

5. Change your investment decisions

If retiring early is a goal, it should influence other financial decisions too, including those relating to investments. How long you’ll invest for and attitude to risk is a crucial part of picking out the right investments for you. Both of these are likely to change if you’re hoping to finish work sooner. When you’re first considering retiring early, reviewing how your current investment portfolios reflect this decision is a wise move, you may find that some restructuring is necessary.

If you’d like to discuss your ambitions to retire early, please contact us. We’re here to help you get to grips with how your finances can deliver the lifestyle you want.

When it comes to planning how your estate will pass to your loved ones, there could be a crucial element that you’re missing; your pension. While you’ve probably thought about who you’d like to inherit your home, investments and savings, pensions are often forgotten about.

It’s easy to see why, after all, while you regularly make contributions to your pension you can’t access it. As a result, it often ends up being an afterthought during the estate planning process. However, when you consider that your pension contributions will typically benefit from tax relief, employer contributions and investment growth over your career, it can be a sizeable sum to leave loved ones. When you look at it from an estate planning perspective, it can make sense too.

Why is using a pension to create an inheritance efficient?

The amount involved isn’t the only reason to consider where you’d like your pension to go should something happen. It’s also a tax-efficient way to pass on wealth, particularly if an estate may be liable for Inheritance Tax (IHT).

Money that’s left in a pension can usually be inherited tax-free. Should you die before the age of 75, money within a pension will go to beneficiaries tax-free if they access it within two years. If you die after the age of 75, the beneficiary will pay Income Tax on the money received at their standard rate.

In contrast, IHT is usually paid at a rate of 40% on an estate that exceeds the nil-rate bands. As a result, using a pension to pass on wealth is often tax efficient and can help more money go to your loved ones. The same benefits apply if you’re taking an adjustable income from the money that remains in a pension. However, once you withdraw money from your pension it will be considered part of your estate for IHT purposes.

Using your pension isn’t the only way to pass on wealth efficiently. You should also look at your wider estate plan to maximise other opportunities open to you alongside it.

How do you pass on your pension?

Usually, what you want to happen to your estate is set out in a will. However, this isn’t the case when it comes to your pension.

Who receives the pension savings of a member that is deceased is typically decided by the pension’s trustees. An expression of wish form is used to allow members to state who they’d like to benefit from their money should they die. These forms aren’t legally binding, however, they let your wishes be known and will be used by pension scheme trustees during the process. You can fill in and update your form by contacting your pension provider directly.

Much like a standard will, it’s important to keep the person nominated to receive pension death benefits up to date. A survey conducted by Canada Life indicated that three in five 16-54 year olds had an out of date expression of wish. Just 39% confirmed their pension would go to their preferred beneficiary should something happen to them. An out of date expression of wish can mean significant delays in beneficiaries accessing pensions or even mean hard-earned savings go to the wrong person.

Andrew Tully, Technical Director at Canada Life, said: “An expression of wish form is a vital piece of the pension jigsaw. Anyone who has a pension would have been asked at outset to complete a form to nominate who should receive the benefits of the pension in the event of their death.

“Given the complexities of life and how things can change so quickly, it is hardly surprising that many people say their form is out of date. But that shouldn’t excuse the fact these forms are vital to help pension trustees and scheme administrators pay benefits not only quickly and efficiently, but to the right people. Think of them as a ‘will for your pension’ and ensure you keep it up to date if your personal circumstances change.”

If you’d like to discuss passing on a pension and wider estate planning, please contact us. We can help you minimise potential tax liabilities on your estate, ensuring as much wealth as possible goes into the pockets of loved ones, rather than the taxman.

Please note: The pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension could also be affected by interest rates at the time you take your benefits.

Workplace Pensions are regulated by The Pensions Regulator.

Investment markets in 2018 saw the return of volatility. A range of factors, from Brexit to US trade policy influenced how well stocks and shares performed. For some people, it means investments may not have delivered the return expected. A glance at returns that are below projections can naturally lead to the feeling that something must be done, but is it the best course of action?

Investment in stocks and shares will always come with some degree of risk and should be considered a way to build wealth over the long term, rather than a quick fix. However, even with this in mind, when you see the value of investments fall a knee-jerk reaction can be common. While you hopefully invested with a long-term plan and goals in mind, a fall in value can cause concerns that you’ve gone off track, or your financial security is threatened.

But, often the best course of action to take is to do nothing at all.

When analysing historical data, it shows investment values typically bounce back, and go on to deliver returns. The 2008 financial crisis is a recent example. While those investing in 2007 are likely to have seen the value of their stocks and shares plummet over the course of 12 months due to the financial crisis, since then many funds and investment portfolios have gone on to recover their losses and generate positive returns.

The FTSE 100, which tracks the value of the 100 largest companies listed on the London Stock Exchange, tumbled 12.5% in 2018, the biggest annual decline since 2008. It wiped off more than £240 billion of shareholder value. It can be unnerving to see values fall, but a key thing to keep in mind is that losses are only set in stone when you sell.

So, while investment values may have tumbled in 2018, it doesn’t necessarily mean you need to change what you’re doing in 2019.

Steps to take if your investments have underperformed

Although investment markets have historically recovered, doing nothing at all as investments lose value can be a difficult mindset to master, even when you know it’s what should be done. Here are five things you can do to ease concerns and keep your investments on track amid volatility.

1. Take another look at your long-term plan: Looking at the bigger picture can put volatility into perspective and demonstrate how long you have for the value of investments to recover. Short-term volatility should be factored into an investment plan, so the impact of recent dips should be minimal when you look at the full timeframe.

2. Speak to your financial adviser: If you have concerns, speaking to a financial adviser can help you understand the impact volatility will have on your overall life goals. It’s an opportunity to bring up particular worries you may have with a professional that understands your aspirations.

3. Consider risk exposure: All investments carry some level of risk. However, if you feel uncomfortable with the level of volatility you’ve experienced in the last 12 months it may be time to reassess where money is being placed. Risk is individual and should consider both your attitude and circumstances, as both of these can change, regular reviews are important.

4. Evaluate portfolio diversity: An investment portfolio should place money in a range of areas, spreading risk and balancing exposure in line with your goals. It’s important to evaluate and rebalance your portfolio where necessary on a regular basis, reflecting your attitude to risk and wider market behaviour.

5. Set review points: It can be tempting to check how investments are performing frequently. However, markets naturally fluctuate on a daily basis and it can give you a skewed outlook of performance. Instead, set out points where you’ll review your investments and financial plans as a whole, for example, every six months, as well as following life events.

Is volatility an investment opportunity?

Falling investment values can present opportunities too. Having seen investment values fall you may be reluctant to put more money into the markets. However, it could deliver greater benefits. Buying stocks and shares when the price is low allows you to take advantage of potential rises in the future.

Of course, it’s important to weigh up the pros and cons of any investment decision before proceeding. You should evaluate a range of different areas, such as attitude towards risk, capacity for loss and portfolio diversity, to identify opportunities that are right for you.

Whether you’re concerned about your portfolio or would like to increase the amount invested, we’re here to offer you guidance and support throughout.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

As you approach traditional retirement age, you may decide that it’s not the right time for you to give up work yet. It’s part of a wider trend and there are any number of reasons you may decide to continue working. However, there are some key things to understand about your pension first.

Phased retirement is becoming increasingly popular. It’s an approach that blends the free time and flexibility of retirement with working. If phased retirement is something you’re considering, you’re not alone. In fact, research from Aegon suggested that half of UK workers over the age of 50 preferred an alternative to ‘cliff edge’ retirement. Rather than giving up work on a set date, a more gradual approach is now desired by thousands of those approaching the milestone.

Whether you want to continue employment to build up your retirement provisions further or because you enjoy it, your pension should be kept in mind, including these five areas:

1. You don’t have to access your pension

Pensions are now usually accessible from the age of 55. However, you’re under no obligation to make withdrawals at any point. If a continued income from work means your pension savings aren’t needed, you can choose to leave the money invested, hopefully continuing to grow.

Even when you do decide to leave work, your pension can still remain untouched. For inheritance purposes, this can be a prudent decision. Money left within your pension can typically be passed on tax efficiently to your loved ones. If your estate may be liable for Inheritance Tax, it can help to minimise the potential bill.

2. You can withdraw from your pension while working

Pension Freedoms introduced in 2015 aimed to give those approaching and in retirement more flexibility. If you choose, you can continue to work as well as accessing your pension. It can provide a way to supplement your income, allowing you to achieve lifestyle goals or boost the income from a part-time position.

From the age of 55, you can access your pension, no matter your work situation. This could mean taking a lump sum, often only the first 25% is tax-free, purchasing an Annuity, or using a Flexi-Access Drawdown product to make adjustable withdrawals.

If this is an attractive option for you there are a few things to keep in mind; limits on future pension contributions, potential tax liability, and ensuring sustainable withdrawals.

3. You can still contribute to your retirement savings, but may be limited

While you’re working, you may want to continue building up your pension. It’s often an excellent way to boost your savings, as employee contributions typically also benefit from employer contributions and tax relief.

The amount you can place into your pension tax-free will depend on whether you choose to access it. The standard Annual Allowance means you can place £40,000 into your pension each year. Although, if you’re a high earner, this may be reduced by as much as £30,000, to £10,000, due to the Tapered Allowance.

However, once you access your pension, the Money Purchase Annual Allowance (MPAA) will apply instead. This limits the amount you can place in your pension to £4,000 each year permanently. It’s reportedly already affected almost one million people over the age of 55.

4. Pension withdrawals are subject to Income Tax

Much like an income from employment, the money you receive from a pension will usually be subject to Income Tax. If you’re continuing to work alongside making withdrawals this can unexpectedly push you into the next tax bracket and increase the amount paid.

As a result, carefully choosing how you’ll access your pension and when you’ll make withdrawals throughout the year is important. Figures from the Office for Budget Responsibility highlight how crucial efficient tax planning is. It’s projected that for the tax year 2018/19 HM Treasury will receive an extra £400 million in tax from pension withdrawals, taking it to a total of £1.3 billion.

For the tax year 2019/20, the Personal Allowance is £12,500, while the higher-rate threshold has increased to £50,000.

5. Your investment strategy may change as you approach retirement age

Most pension funds will automatically adjust how your savings are invested as you approach retirement age. Typically, your investments will be transferred to a portfolio that is considered less risky. This is done in a bid to limit the amount of volatility your pension is exposed to before you’re expected to begin making withdrawals.

If you plan to access your pension on the expected date, this may be the right strategy for you. However, if you plan to leave your pension invested for an extended period of time, selecting investments that have a higher risk profile may suit your goals more closely. It’s important to look at the investment time frame, capacity for loss, and your overall attitude to risk should you decide to change how your pension is invested.

If you have any questions about your retirement plans, please contact us. We’re here to help you get the most out of pensions and other retirement provisions, whichever approach to giving up work you decide to take.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, 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.

Workplace Pensions are regulated by The Pensions Regulator.

If your income were to suddenly stop, how long would you be able to continue your current lifestyle for? If you made cutbacks, how long would your savings last for?

It’s not something anyone wants to think about, but the truth is, people lose their income every day. Understanding how you’ll get by should something happen can put you in a better position financially and reduce the stress experienced if you’re affected. There is a range of unexpected reasons why your regular income may stop, either in the short or long term, from being involved in an accident to facing redundancy.

When it comes to negative events like this, we often think ‘it won’t happen to me’. However, the reality is very different. Official figures show that more than a million workers are off work for more than a month every year. Do you have a capacity to cover a month’s worth of outgoings without it impacting your lifestyle? If the answer is ‘no’, you’re not alone. Research from Royal London found that more than half of workers would worry about their income should they become too ill to work for an extended period of time.

With the risk of not being able to work in mind, taking steps to secure your financial future, whatever unexpected events happen, is important.

Building an emergency fund

One of the best places to start when taking steps to improve your financial security is to start building up an emergency fund, if you haven’t already done so.

It’s recommended that you have between three and six-months’ income readily accessible should you experience a financial shock, from an unexpected bill to losing your income. This gives you a financial buffer to fall back on without having to compromise your lifestyle. It’s a step that can help give you peace of mind too; should something happen, you’ll know your bills and other financial responsibilities will be taken care of.

While several months salary can seem like a big step initially, even putting relatively small sums away each month means your safety net will quickly grow.

When searching for a home for your emergency fund, you want to make sure it’s accessible at any point. Of course, an account that will generate as much interest on this sum as possible is attractive, but be sure your money isn’t tied up for a defined period of time before making a decision.

Check your sick pay entitlement

Next, check what your employer’s sick pay policy is. These vary significantly between employers and with the current gig economy, some firms don’t offer sick pay at all. Understanding what you’ll be entitled to if you were unable to work due to illness or injury puts you in a better position to plan and make further deposits to your emergency fund if necessary.

Statutory Sick Pay (SSP) covers most employees, however, some are excluded, and is paid by the government if you’re off work for a minimum of four consecutive days. It will pay out for up to 28 weeks, but at just £92.05 per week, it’s likely many will face a shortfall if relying solely on SSP.

Company sick pay policies are often more generous, paying your average wage or a portion of it each month for a set period of time. It’s a benefit that can give you peace of mind and security should something happen.

However, as stated above, not everyone will be entitled to company sick pay. If your employer doesn’t offer one, you will need to rely on SSP and your own provisions. Your entitlement should be included in your contract. If you have any questions about the amount of money you’d receive and how long sick pay would be paid for, it’s best to speak to your employer directly.

Consider protection products

Finally, protection products can be used to provide further security should something happen. These are policies that will pay out in certain sets of circumstances. Before you start to look at protection products, there are some important things to think about.

First, is the type of protection product you want. This will depend on your circumstances and priorities, in some cases, you may want to take out multiple products or one that covers a range of areas. Critical illness cover, for example, will pay out a lump sum if you, or those covered by the policy, are diagnosed with a medical condition that’s named in the policy. Income protection, on the other hand, will usually pay out an income on a monthly basis if you become too ill to work, after a certain period of time. Some policies will continue to pay for a fixed period, such as a year or two, while others will provide income until a maximum age such as 65 or 75.

Second, you’ll want to ensure the protection you take out dovetails with the sick pay you’ll receive, as there will typically be a deferred period. If, for example, your company will pay your full salary for six months should you fall ill, ideally, you’ll want a protection policy that will have a six-month deferment period. This allows you to reduce the premiums paid as much as possible.

If you’d like to discuss your financial situation and the steps you can take to improve short, medium and long-term security, please contact us.

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