Drawdown Retirees Unaware of Income Flexibility

Drawdown retirees unaware of income flexibility

A YouGov survey commissioned by Zurich* has revealed that most retirees in drawdown are unaware they can vary their level of income. And, perhaps unsurprisingly, the research also found those not receiving financial advice were more likely to be in the dark.

Importance of advice
The study suggests over half of individuals who have unlocked their savings since the introduction of pension freedoms in 2015 were unaware they could scale back or stop withdrawals from their pension funds despite flexible income being a key feature of drawdown.

A stark difference was also revealed in the knowledge of those who had sought advice and those who hadn’t. Indeed, while only 35% of non-advised retirees knew they could reduce drawdown  income, 77% of respondents receiving ongoing advice were aware of this fact.

‘Pound-cost-ravaging’ trap
There is a danger to this ignorance as it puts investors unwittingly at risk of draining their pension pots if stock markets fall. This is known as ‘pound-cost-ravaging’ (not to be confused with ‘pound cost averaging’) and is where people are forced to sell more investments to achieve unsustainable income levels. Engaging with your drawdown savings is vitally important; we’re here to help you
plan effectively.

“…over half of individuals who have unlocked their savings since the introduction of pension freedoms in 2015 were unaware they could scale back or stop withdrawals from their pension funds…”

*Zurich, June 2019

Tending Your Portfolio Will Make It Bloom

Tending your portfolio will make it bloom.

All successful gardeners will understand the need to regularly tend their plants, shrubs and lawns in order to ensure a garden can flourish. And, for investors, taking a similar approach with their financial affairs can also bear fruit by ensuring their investment portfolios don’t become neglected and, as a result, underperform.

Weeding, sowing…
As with a garden, your investment portfolio requires regular careful attention in order to ensure it continues to grow. Typical tasks include weeding out any perennially underperforming funds and switching to potentially more profitable ones and, for those with new money to invest, sowing the seeds of your portfolio with carefully selected additional new investments.

…pruning and trimming
Another important task is pruning. This will ensure your investment portfolio stays balanced and continues to fully reflect both your current and long-term financial goals as well as any changes in your appetite for risk.  It may also require taking profits at certain points in time to ensure you are using any potential tax allowances.

However carefully your initial range of investments were selected, your portfolio will also inevitably get out of shape over time. This creates an ongoing need to regularly review the allocation of different asset classes, such as cash, equities, bonds and property. And such a review may result in the trimming back of certain assets in order to restore balance to your portfolio.

Help is at hand
Many people now seek professional help to create and maintain their garden and it’s obviously wise for investors to do the same thing. Indeed, with ongoing political and economic uncertainties causing increased market volatility, there has arguably never been a more important time to seek professional financial advice. Keep in touch, so that we can help you keep your investment portfolio in full bloom.

 

Women risk becoming pension poor on divorce

There are no hard and fast rules governing how assets should be divided when a couple divorces, although there is a broad starting point of 50:50. However, new research* shows that women who divorce can often end up with less than half the property wealth of married couples and less than one third of the average pension wealth. The study showed that the average divorced woman over 50 has pension wealth of £131,000 compared with £454,000 for the average married couple.

Dividing pension assets

Many people think that on divorce a pension solely belongs to the party who is named on the policy, but that’s not the case. A pension has to be considered along with other financial assets owned by the couple when reaching a financial settlement. Pension assets can be apportioned in various ways:

• offsetting the value of one spouse’s fund by transferring a lump sum, or other assets, to the other spouse

• splitting the pension fund into two separate pensions

• arranging that when a pension comes to be paid, a portion goes to the other spouse.

Getting the right advice at the right time

The findings underline the need to get advice when considering how marital assets should be divided on divorce.
A pension pot can often represent a substantial sum of money and needs to be considered alongside other major assets such as property.

Post-divorce, it makes sense to discuss your revised circumstances with us. You’ll need to reconsider your financial goals, and review your mortgage, pension and investment plans, plus remake your Will. Reorganising your finances can represent a major step in moving forward to a new life.

*Source – Royal London, 2019

Staying out of the dog house

You may have seen articles in the financial press referring to ‘dog’ funds, and wondered what the term means. If so, don’t be concerned, put simply, a ‘dog’ fund is one that is regarded as an under- performing fund.

Meaningful comparisons

All investment funds fall into sectors – for example, UK All Companies, Global Equity Income, Japan, UK Smaller Companies or Global Emerging Markets. By classifying funds under these headings, it makes it much easier to make meaningful comparisons. As well as being compared against each other, they can also be compared against the average performance for all the funds in that sector. If a fund is consistently 10% below the sector average, it can earn the ‘dog’ tag.

By keeping a close eye on the performance of your assets, under- performing funds can be quickly identified and monitored, and if necessary, changes made to your portfolio.

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

If a fund is consistently 10% below the sector average, it can earn the ‘dog’ tag

 

Are the best things in life really free?

Recent research* shows that many of life’s most enjoyable events come with a hefty price tag. The research calculates that going to university, buying a house, getting married, having two children and then retiring could, on average, add up to £566,659 over the course of a lifetime. This is a huge sum and illustrates the need for careful planning.

Separating ‘wants’ from ‘needs’

Many people believe that the key to meeting financial goals is to identify what is most important to you. For instance, whilst you might want to eat out several times a week; affording a home of your own, or enjoying a comfortable retirement, might mean cutting down on these nights out.

The problem is that we can all find ourselves trying to save for multiple goals at once and this can feel like an almost impossible task. This is where taking financial advice can really help. We will be able to assist you in putting together a financial plan that addresses both your short and longer-term financial needs.

Getting the savings habit

As a starting point, everyone needs to have some money put away for emergencies like an unexpected bill. This means having some cash that can be accessed quickly. Then it makes sense to think about the bigger and more exciting things in life, and have money saved that steadily builds up for the future. Tax-efficient accounts like ISAs can really help here and you can invest lump sums or make regular monthly contributions.

Whatever your age, plan for retirement

You should certainly think about your pension savings, even if retirement seems light years away, it will come around quickly enough, and the more you can save now, the longer your money has to grow. If you think about it, failing to save for retirement might mean you’re struggling to afford even the basics in years to come.

*Source – Royal London, 2019

What money rules would you pass to the next generation?

As parents and grandparents, we all hope the values that we hold dear can somehow be passed on to our children and grandchildren. We’d all like them to be able to make the right financial decisions for the future. Here are a few thoughts that might just help

Spend less than you earn
It’s not easy to get ahead if you’re spending as much, or more, than you’re earning. Everyone needs a back-up fund, and one of the easiest ways to ensure you’re putting money by for a rainy day is to pay yourself first. Transferring money into a savings account on pay day can help you manage your budget better and encourage you to maintain the savings habit. If you don’t have any cash reserves, you could find yourself building up debt by putting emergency spending onto your credit card.

Take control, keep on track
Everyone has financial aims and learning to control money from a young age will help them become achievable. Whether it’s saving for a deposit for a home of your own or ensuring you have enough to live on in retirement, starting early, getting good advice and regularly reviewing the progress you’re making towards your goals all make good sense.

If it seems to be too good to be true… Financial scams are now widespread and come in a variety of forms. What they offer may look appealing and be presented by people who seem plausible, but scams have resulted in people being used as money mules and risking criminal prosecution or losing substantial amounts of money to bogus or unsound investments, or even being conned out of their entire pension savings. Don’t let this happen to you.

Taking financial advice about major transactions such as investments, mortgages and pensions aims to ensure that your interests will always be fully protected, and you will be able to make the right decisions for your financial future.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

Gifting early to avoid IHT

Many people are considering reducing the size of their estate to minimise the Inheritance Tax (IHT) that will be payable on their death.

Recent research* estimates that nearly seven million parents have already given their children around £227bn of their wealth early in order to reduce the amount of IHT payable on their estates. A further 6.5m are thought to be considering similar moves.

Using trusts and life policies
Many families are using trusts to ringfence assets, effectively removing their value from their estates. However, anyone considering giving away assets in their lifetime should take professional advice. Inheritance Tax is complex and lifetime gifts can end up being taken into consideration for tax purposes if all the conditions applying to these types of gifts aren’t fulfilled. Also, Chancellor Philip Hammond earlier this year ordered a review of the IHT system, the implications of which we will monitor closely.

The Financial Conduct Authority does not regulate some forms of taxation advice.

*Source – Direct Line Group, Oct 2018

Number of working women aged 60-64 has doubled

Employment statistics show that more women are staying in the workplace for longer, with 48.5% in this age bracket in employment*, compared with just 23.4% back in 1998. This is attributed variously to the short-notice rise in the state pension age from 60 to 65 or 66 currently affecting many women born in the 1950s, higher incidence of divorce later in life, financial necessity, or simply a desire to keep mentally active.

It’s also a welcome indication that employers acknowledge the benefits of retaining the skills of older employees within the workplace, though most employers can no longer force retirement
when an employee reaches a certain age.

*Source – Royal London, Oct 2018