Category Archives: Pensions

New Report Highlights Retirement Styles and Their Cost

A new report has revealed the amount of money individuals and couples will need in order to access different styles of retirement. The Retirement Living Standards report, produced by the Pensions and Lifetime Saving Association (PLSA), has been developed to help individuals paint a better picture of the kind of lifestyle they could have in retirement according to the income they stand to receive.

The publication shows three different levels of retirement – minimum, moderate and comfortable, demonstrating each with a basket of goods and services, ranging from everyday essentials including food and drink to other purchases that may be made on an annual basis, such as holidays.

A ‘minimum’ retirement of income of £10,200 per year for a single person (or £15,700 for a couple), would afford a one week holiday plus a weekend break in the UK every year, eating out about once a month and a £38 weekly food shop. A moderate income of £20,200 a year for a single person (or £29,100 for a couple) provides ‘more financial security and more flexibility’, affording a 2 week holiday in Europe and a long weekend in the UK every year, a £46 weekly food shop and £750 for clothing and footwear each year. In order to experience a ‘comfortable’ retirement with more financial freedom and some luxuries, including regular beauty treatments, two foreign holidays a year and a £56 weekly food shop, an annual income of £33,000 a year (or £47,500 per couple) would be needed.

The full breakdown of the expenses that could be afforded at each level of retirement can be explored in detail here https://www.retirementlivingstandards.org.uk/

The Retirement Living Standards have been developed following previous PLSA research which showed that 51% of people focus on their current needs and wants at the expense of providing for the future and only 23% of people are confident they know how much they need to save.

The report highlights that with the current state pension entitlement and an auto-enrolment pension pot at the minimum contribution level, ‘most people’ in the UK could attain the ‘minimum standard’ of retirement living. When looking at the detail of what this entails compared to what a larger annual income could afford goes some way to help people picture their future retirement.

These findings are a useful way for individuals and couples to benchmark their retirement aims and goals. Although many people save for retirement, they rarely have a clear picture of how much they will need, particularly during the early years of pension contributions. Although the Retirement Living Standards are a useful starting point, in order to find out if you’re on track for the type of retirement you want, it will be necessary to do some further research or consult a financial adviser.

We tend to find that as they get closer to retiring, clients develop a sharper focus on what they want from retirement. Unfortunately, by leaving it until the latter stages of working life, individuals may find that they haven’t left enough time to accumulate savings.

It can be said with some certainty that the earlier saving for retirement commences, the ‘cheaper’ it is – due to the ability for compound interest – reinvesting the proceeds of investments and savings.

For more information on retirement planning, please contact us to speak to one of our Chartered Financial Advisers.

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Saving for Retirement – Are you Doing Enough?

A recent report by pensions provider Scottish Widows has found that more people than ever are saving for a comfortable retirement. Scottish Widows 15th annual Retirement Report revealed that 59 per cent of people are now saving at an adequate rate, a 4 per cent increase from 12 months ago, when the figure stood at 55 per cent. The increase in savings rates has been attributed to the rise in the minimum contribution levels of auto-enrolment pensions, introduced in April 2019.

To date, over 10 million people have been automatically enrolled in an auto-enrolment pension scheme and according to the Office for National Statistics, the proportion of individuals who are now saving into a defined contribution pension has risen from 17 per cent in 2012 to 47 per cent in 2018.

Although this is a definite step in the right direction, in many cases, it will still fail to provide a pension pot that will be adequate to see an individual through the entirety of their retirement. The Scottish Widows data found that although the proportion of under-30s now saving into a pension has increased dramatically, three in five are saving below the recommended level for a comfortable retirement and 14 per cent of the age group are not saving anything.

Furthermore, the report found that 22 per cent of adults in the UK expect they will never be able to retire.

Auto-enrolment has proven to have a measurable impact on pension savings, but the danger is thinking that this is enough. Those that are able to save more – both into pensions and ISAs – will give themselves a greater level of options when it comes to retirement.

The problem is that many people are blissfully unaware of how much they will need in retirement and therefore how much they realistically need to save. The good news is that there are many different tools available that can help clarify your position.

Regardless of your age, having the discipline of regular saving or setting goals for annual savings can go a long way to funding a financially comfortable retirement.

The Scottish Widows report can be found here.

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42% of Pension Savers at Risk of Falling Victim to Pension Scams

New research suggests that 42% of pension savers, which would equate to over five million people across the UK, could be at risk of falling for at least one of six common tactics used by pension scammers.

The findings, which come from research conducted by The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR), also revealed that among those who said they were actively looking for ways to boost their retirement income, the likelihood of being drawn into one or more scams increased to 60%.

The most common tactics employed by scammers include cold calls, exotic investments, a free pensions review, claims of guaranteed high return, time-limited offers and early access to your pension pot before age 55.

Despite the government’s ban on pension cold-calls this January, 23% of all those surveyed said they’d talk with a cold-caller that wanted to discuss their pension plans.

Pension scams are a very real threat, especially to those with significant levels of pension savings. According to statistics, victims of pension fraud in 2018 lost an average of £82,000. However, any loss of funds that you spent your working life building up can be devastating.

The advice to help avoid falling victim to pension fraud is:

  • Reject unexpected pension offers whether made online, on social media or over the phone.
  • If you are at all concerned or suspicious, you should check to see if the firm you are dealing with is authorised by the FCA before changing your pension arrangements. You can do this by reviewing the FCA Register or calling the FCA contact centre on 0800 111 6768.
  • Don’t be rushed or pressured into making any decision about your pension.
  • Consider getting impartial information and advice from an independent Chartered Financial Adviser. Those aged 50 can access free independent advice via the government-backed Pension Wise service.

Useful Resources:

The FCA has a warning list tool – designed to help you check the legitimacy of an offer or approach.

The Pensions Regulator has produced a handy leaflet that runs through the common ways to spot a scam and how to protect yourself from fraudsters.

 

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Gresham Secure Pension Transfer Gold Status

Gresham Wealth Management has been awarded Pension Transfer Gold Status, a quality kite mark designed to assure consumers who are considering a transfer out of a final salary or defined benefit (DB) pension scheme.

Created by the Personal Finance Society with a range of representatives drawn from across the industry, including professional indemnity insurers, the Pension Transfer Gold Standard only applies to financial advice firms that have met the strict qualifying criteria.

The need for an industry quality standard arose following the introduction of rules which made it a legal requirement for individuals looking to transfer out of a defined benefit pension with benefits worth £30,000 or more to seek financial advice.

The Gold Standard has been developed to enhance a client’s experience of financial planning in this complex area, particularly following a number of cases that hit the headlines where individuals were set to lose out following ill-considered advice.

The idea behind the Gold Standard is to assure members of the general public who are considering transferring out of a Defined Benefit pension scheme that they are receiving the best possible advice, service and support.

The Gold Standard requires firms to adhere to a set of nine principles. Furthermore, all advice must either be given or signed off by an individual who has the relevant qualifications.

Morven Millar, Chartered Financial Adviser and Director at Gresham said:

“The decision whether or not to transfer out of a defined benefit pension is not always straightforward. Pension contracts are notoriously complex and although the perks of a modern pension contract with the flexibilities of pension freedoms may sound attractive, there are usually several factors to consider, often reaching far beyond the matter of cost. For example, considerations should include quality of health, the availability of other means of income in retirement, the value of other assets and the need for flexibility in drawdown should all play their part in the decision.

“By working with a firm that has voluntarily committed to the Pension Transfer Gold Advice, you can be confident that you will receive the best possible advice, service and support when considering transferring out of a Defined Benefit pension scheme.”

Find out more about the Pension Transfer Gold Standard by reading their consumer guide here.

If you wish to know more about The Pension Transfer Gold Standard or are seeking advice regarding transferring out of a Defined Benefit pension scheme, please contact us.

 

 

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Nine Things you Need to Know about Buying a Commercial Property With a Pension

We recently blogged on the relative advantages of property and pensions as investment strategies. As part of the article, we looked at commercial property and how this can be used to combine the merits of both property and pensions.

Buying a property using a pension fund comes with its own set of rules and isn’t the right strategy for everyone.

Here we look at nine things you need to know if you’re considering using a pension to fund a property purchase.

What type of property

The rules on the type of property that a pension can purchase are fairly tight and do not allow for the purchase of residential property. Any property you buy in your SIPP or SSAS must therefore be classed as commercial. Where a property is classed as mixed use, for example a residential flat above a shop, only the commercial part of the building can be purchased using the pension.

What type of pension

SIPPs are the most common type of pension used to purchase commercial properties but don’t assume that every SIPP allows property purchase. Pension providers usually charge set-up fees, property purchase fees and annual fees that vary significantly from provider to provider. There are also other things to consider when choosing a SIPP provider, including whether there is online access and the capability of the provider of meeting your timescale for the transaction.

Financial planners are able to recommend suitable SIPP providers for the transaction and will assist in setting up and moving funds to a new SIPP where required.

Borrowing

Both SIPPs and SSASs can borrow up to 50% of the scheme’s net assets to fund the purchase of a commercial property.

A property can be purchased irrespective of whether it is your or another business trading from it. However, if you are borrowing to fund the purchase, the lender will need to either be satisfied that your company can afford to pay the rent or that there is sufficient market demand.

Flexible additional funding options

Although the rules on the type of property you can buy are strict, there are a number of methods by which the purchase of a commercial property by a pension can be funded. This opens the door to commercial properties for a wider range of pension holders.

Some of the ways you can fund the purchase of a commercial property with your pension include:

  • The pension borrowing money from a bank
  • The pension buying the property jointly with another pension – ideal for companies with a number of directors
  • The pension buying the property jointly with your company or with another party (including you personally)

Should further cash be accumulated in the pension over subsequent years, buying the remainder of the property could be an option in the future.

Lack of liquidity

One of the main drawbacks of purchasing a property using a pension is lack of liquidity. If the property has not been sold by the time you retire, your pension will potentially have a relatively small amount of liquid assets to draw from. Depending on your financial situation and whether you have other investments to fund your retirement, this may or may not present problems. As such, the purchase of a commercial property with a pension is not suitable for everybody and seeking advice well in advance of retirement age is recommended.

Lack of diversification

A property will usually comprise the majority, if not all, of a pension fund’s assets so by purchasing a property, you run the risk of ‘putting all your eggs in one basket’, or in technical terms, over-exposing yourself to a single asset class. Should commercial property prices experience a downturn, this could have a significant effect on your retirement fund. Diversification between asset classes is generally considered to be one of the fundamental strategies to successful investing and this needs to be carefully considered before any purchase is made.

Lifetime allowance issues

Assessment against the Lifetime Allowance could force the property to be sold during retirement without consideration of whether the timing of the sale is optimal.

No cheap deals

Whilst transactions between connected parties are permitted, such as a pension purchasing a commercial property from the member’s company and subsequently leasing it back, there are strict guidelines. The property must be purchased at market value and any future sale of the property must also be in the best interests of the pension. The rental value of the property must also be evidenced by a report from a Member or Fellow of the Royal Institute of Chartered Surveyors (MRICS or FRICS).

Tax breaks

The tax breaks available for those purchasing a commercial property with their pension are one of the most appealing aspects to consider.

These include:

  • No capital gains tax will be payable on the proportion of the property owned by the pension if it is sold in the future
  • The pension pays no income tax on rent received
  • The rent payable is tax deductible for the company (beneficial if operated by the member’s company)
  • Properties held within a pension are not subject to inheritance tax if the pension holder was to die

Buying a property with a pension is a complex transaction and we would always recommend that you seek advice. Our financial planners can help you decide whether a commercial property purchase is right for you, and should you choose to go ahead, ensure that you have a quality pension product in place and make full use of the tax advantages of the strategy.

To speak to one of Gresham Wealth Management’s financial planners, please contact us.

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