Flexing drawdown for better client outcomes
This article has been written by the technical department at Standard Life
Flexibility to vary income to adapt to changing needs is perhaps the key appeal of income drawdown. So the drawdown changes announced in March's Budget create a catalyst for advice to help drawdown clients achieve better outcomes in retirement.
Advice is the key to good client outcomes
Standard Life's research shows that, particularly for wealthier clients, income needs are unlikely to match the conventional pension income shapes produced by annuities or defined benefit schemes.
SMILE!
•For many, we've identified a 'retirement income smile' pattern. This is driven by higher demand for income early in retirement when clients are still active. Income needs drop off with age, then pick up again as personal assistance and long term care needs develop.
•Others simply want a relatively modest, sustainable income – but with scope to turn it up if their circumstances change.
•Some wealthy clients' main need is to draw as much income as early as possible to gift to loved ones, via trusts or pension plans as well as directly, as part of a wealth transfer strategy.
Income drawdown is well suited to meet all these diverse client needs and aims. And the higher the income limit available, the more room there is to manoeuvre. Which is why the Budget announcement was so welcome.
But it's not about always taking the maximum allowed, it's about having the flexibility to take more income when it's needed and cut it back again when it isn't.
This is where advice is key. Drawdown isn't a 'self-service' option. It's complicated. There has never been a better time for advisers to demonstrate their true worth by helping drawdown clients do the right thing to exploit this flexibility to attain their financial goals.
Where did it all go wrong?
Drawdown users, and their advisers, have had a rough ride in the last few years. Markets have been difficult. But much of the pain has been imposed by the drawdown regime itself:
•The linking of drawdown rates to gilt yields means that plunging yields fuelled by QE have had a disproportionate impact on income limits.
•And the 20% limit cut, and new GAD tables, in 2011 simply compounded the problems.
A typical example illustrates this:
•A 60 year old man starting drawdown with a £100,000 pot in August 2007 (when gilt yields were 5.25%) would have had an income limit of £8,280 a year.
•At his 5-yearly review in August 2012, even if he'd maintained his £100,000 pot, this client's new income limit would only have been £5,300 (56% lower than the old limit)! This is partly owing to the 20% headline limit cut – but primarily because, by then, the gilt yield had dropped to 2%.
It's a case of the tail wagging the dog. Logically, with the same pot having to last him 5 years less, this gent's allowable income should have gone up!
Light at the end of the tunnel – an advice opportunity
Thankfully core elements are coalescing to create light at the end of the tunnel.
•Most importantly, gilt yields appear to have at last bottomed out (IG: but remember, this may not be the case and they could fall further).
•Markets remain volatile, but they're well up on the lows of 2009 that saw the FTSE 100 drop to almost 3,500. And the increasing availability of sophisticated, risk-based investment solutions makes it easier to reduce the volatility that can be so damaging in a decumulation environment.
•These factors, combined with the move back to 120%, should get income limits back to more realistic levels from the start of drawdown users' next income year after 25 March 2013.
Here is an example:
Edith started pension drawdown on 1 August 2012. She was 60, her drawdown pot was worth £150k and the GAD drawdown yield was 2.0% - giving an income limit of £6,450.
If no action is taken, this will simply increase by 20% to £7,740 from 1 August 2013.
But what if Edith triggers an earlier review by paying more money into her drawdown pot on 30 March? Changes since August could really boost her income limit:
•Unisex rates: Edith now benefits from 'unisex' (male) drawdown rates, following the implementation of the EU Gender Directive into UK law in December 2012.
•Rising yields: The GAD drawdown yield has gone up from 2.0% to 2.75% since August 2012.
•Rising markets: The FTSE has grown by about 25% over the same period. Suppose Edith's drawdown fund has done the same. So, even after taking her maximum £6,450 income, it's now worth about £180k.
•Getting older: And Edith has had a birthday, so is now 61.
Edith's new 100% income limit is £9,360 – allowing her to take an extra £2,910 from her drawdown pot before her new income year starts on 1 August.
This will increase by 20% to £11,232 on 1 August - over 45% more than if no action was taken (and over 74% higher than her August 2012 limit).
And the Government's kick-start of an early review to get GAD drawdown rates themselves back to reality mean there's more good news in the pipeline.
For example, improving market conditions mean advisers can potentially help boost clients' income limits sooner than the start of their next income year. This can also turbocharge the effect of the 20% hike when it comes. An early income review can be triggered simply by phasing more funds into an existing drawdown pot. Or by requesting an ad hoc limits review from the start of the new drawdown year.
This sort of flexibility supports holistic advice strategies that help put the client's needs first. Which is what drawdown is all about. But good professional advice is the key that can unlock it – creating the fundamental building blocks for the successful use of income drawdown as part of an efficient, flexible, but sustainable wealth decumulation strategy.
If you are a client of Green Financial - or not - and would like an income drawdown review, please contact me
Showing posts with label Retirement. Show all posts
Showing posts with label Retirement. Show all posts
Wednesday, 26 June 2013
Thursday, 28 June 2012
Pensions as food?
Today I've had my eye on pensions and food after @GHLumsden posted a piece suggesting ISAs were like fish 'n' chips. He's now comparing pensions to kebabs (?! - you can view here : http://citywire.co.uk/money/how-pensions-work-and-why-theyre-like-kebabs)
Later today whilst reading the professional press I noted Andy Zanelli of Axa saying "Advising on pensions is like peeling an onion. As you peel off the skin it starts to get painful and by the time you have chopped, sliced and diced, the eyes are really stinging and full of tears"
As an IFA, I know the feeling Andy.
Axa Andy's quote reminded me of seventy-year-old Eletharias of Greece. I saw him on the news last month collecting onions from some wheelie bins.
Since the euro crisis he says he cannot afford to go the supermarket any more, so for the past few months he has started rummaging for food in dustbins. He goes out in Athens at night so that no one sees him.
"Since my pension was cut, I can't buy food so I look through the garbage," he said.
http://news.sky.com/story/20186/families-crumble-in-greeces-economic-crisis
Just a few days ago NEST, the new goverment designed compulsory pension thingy showed the results of a survey : Food, fun and football? ... why ‘Tomorrow is worth saving for’
The survey suggests that low confidence, rather than unwillingness, may be one of the main reasons for people not saving enough for their later lives.
http://www.nestpensions.org.uk/schemeweb/NestWeb/includes/public/news/Food-fun-and-football-NEST-asks-consumers-why-Tomorrow-is-worth-saving-for.html
The majority (71 per cent) agree they may not have put enough aside because they don't want to make the wrong decision about saving for retirement, whereas nearly half (47 per cent) agree it’s because they don’t know enough about what would be their best option.
Here's a final sobering statistic that I calculated myself. If you retired at age 60 and ate a Happy Meal 3x a day (say £3 for the McMeal) and you lived for 25 years, even without inflation, that would be over £80,000 you'd spend on food. From a taxable pension income that means a fund of £100,000!
http://www.mcdonalds.co.uk/ukhome/more-food/happy-meal.html
So if you have aspirations to live happily ever after, but eat more than just happy meals, do visit your retirement planning. Perhaps even consider allowing Green Financial to assist ...
Later today whilst reading the professional press I noted Andy Zanelli of Axa saying "Advising on pensions is like peeling an onion. As you peel off the skin it starts to get painful and by the time you have chopped, sliced and diced, the eyes are really stinging and full of tears"
As an IFA, I know the feeling Andy.
Axa Andy's quote reminded me of seventy-year-old Eletharias of Greece. I saw him on the news last month collecting onions from some wheelie bins.
Since the euro crisis he says he cannot afford to go the supermarket any more, so for the past few months he has started rummaging for food in dustbins. He goes out in Athens at night so that no one sees him.
"Since my pension was cut, I can't buy food so I look through the garbage," he said.
http://news.sky.com/story/20186/families-crumble-in-greeces-economic-crisis
Just a few days ago NEST, the new goverment designed compulsory pension thingy showed the results of a survey : Food, fun and football? ... why ‘Tomorrow is worth saving for’
The survey suggests that low confidence, rather than unwillingness, may be one of the main reasons for people not saving enough for their later lives.
http://www.nestpensions.org.uk/schemeweb/NestWeb/includes/public/news/Food-fun-and-football-NEST-asks-consumers-why-Tomorrow-is-worth-saving-for.html
The majority (71 per cent) agree they may not have put enough aside because they don't want to make the wrong decision about saving for retirement, whereas nearly half (47 per cent) agree it’s because they don’t know enough about what would be their best option.
Here's a final sobering statistic that I calculated myself. If you retired at age 60 and ate a Happy Meal 3x a day (say £3 for the McMeal) and you lived for 25 years, even without inflation, that would be over £80,000 you'd spend on food. From a taxable pension income that means a fund of £100,000!
http://www.mcdonalds.co.uk/ukhome/more-food/happy-meal.html
So if you have aspirations to live happily ever after, but eat more than just happy meals, do visit your retirement planning. Perhaps even consider allowing Green Financial to assist ...
Wednesday, 11 January 2012
State Pensions and the missing £144,625.81
Pension Insight magazine (http://www.pensions-insight.co.uk ) editor Bob Campion recently wrote that the gradual reduction in maximum state pension benefits could end up costing some people £144,625.81.
He calculated this is the amount you’d need to buy an annuity to replace the lost £6,326.84 a year if the maximum state pension reduced from £13,606.84 to £7,280
The £13,606.84 is the theoretical maximum for someone with full basic state pension (BSP, currently £102.15pw in 2011/12 available to those with more than 30 years NI contributions) and maximum second state pensions (SERPS and S2P). This contrasts with the maximum £7,280 payable if we move to the proposed £140 per week flat rate system. It would affect most higher earners and those who do not qualify for any kind of pension credits or means tested pension top ups. At present almost 1 in 2 pensioners are eligible for top ups of some kind but for those who do not qualify for state assistance over and above the basic state pension the changes to state pension rules looks likely to mean a significant reduction in available benefits over the coming decades, with less effect on those retiring sooner, especially in the next 10 years.
As a point of interest if the new rules all come in when proposed (but it looks likely they will be brought forwards) it will be into the 2080’s before everyone is on the same rate. Until then there will be a mixture of different regimes and people will have multiple pensions (private and state) with different rules and retirement ages applying depending on age and pension structure.
This makes it nigh on impossible to accurately calculate one’s own state pension benefits until the point you reach them. Indeed even the DWP are not really sure what income a pensioner will get until they reach state pension age (65 and rising). As an IFA it makes it financially impractical to charge a client to work this out. The time and cost involved outweigh the benefit!
Contracting out (called SERPS up until April 2002 and S2P afterwards) will soon no longer be available from money purchase schemes, which includes personal pensions and SIPPs – see also http://greenfinancial.blogspot.com/2011/12/contracting-out-serps-s2p-all-that.html
It used to be the case, that as an IFA, I could estimate whether it was ‘worth’ contracting out or not. There were a multitude of individual factors but the biggest was often if aged under or over 45. So the ending of contracting out from money purchase schemes is a welcome simplification but as indicated above the change to the new regime will bring complification [ED: not a real word but should be] well into the 2080s. Again, on the plus side, the new rules should benefit lower earners.
But what is the detriment to higher earners?
The loss of the income as stated at outset in this article is one but there is another. The impact on attaining qualification for the new ‘flexible drawdown’
- download Green Financial guide here: http://www.iangreen.com/downloads/Flexible.pdf
or view on facebook here:
http://www.facebook.com/media/set/?set=a.279726955386751.88831.136170059742442&type=1&l=b96248bd07
This requires a lifetime pension income provision of at least £20,000. So having state benefits of £13,000+ goes much further towards this than £7,280! If you had the £13,606 to buy a comparable annuity to top up to £20,000 would mean you’d need a personal pension of about £93,000 to buy the annuity. At the lower state pension income you’d need more like £200,000 to top up.
To repeat a fact I tweeted last year, to purchase an annuity (so income for life) on the same terms as the state pension a 65 year old male would need a private pension fund of £310,343.19
So in summary, pension and state pension simplification is of course welcomed by all, especially me as I will be far better placed to assist clients in calculating what there state pension entitlement might be. But the journey to a simple state pension regime is far from defined and will be a long journey whatever direction it takes.
Under current proposals I’ll be aged 109 when all pensioners are on a flat rate pension income!
For those retiring in the next ten years, there is not so much to worry about as the status quo all but applies, with changes to retirement age (upwards, see link to calculator below to work out yours) being the main factor coming slowly in.
But for those retiring 10 years out, especially those who aspire to or consider they will have taxable income at the higher rate of tax it is well worth making sure your pension – and most importantly forecast pension income - is reviewed to ensure it is on track to meet your aims.
If you are a pension or retirement income client of Green Financial or would be interested in becoming one, please do contact us. We’d love to help if possible.
Further Reading and Resources
28 page Green Financial Retirement Planning Guide - http://www.iangreen.com/downloads/Retirement.pdf
Government Money Advice Service - http://www.moneyadviceservice.org.uk/yourmoney/pensions_and_retirement/default.aspx
State Pension Age Calculator -
http://pensions-service.direct.gov.uk/en/state-pension-age-calculator/home.asp
Getting a State Pension Forecast - http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/StatePensionforecast/DG_10014008
Green PEAs – The Green financial Pension Evaluation and Analysis Service for personal pensions -
http://www.iangreen.com/pensionperformance.php
He calculated this is the amount you’d need to buy an annuity to replace the lost £6,326.84 a year if the maximum state pension reduced from £13,606.84 to £7,280
The £13,606.84 is the theoretical maximum for someone with full basic state pension (BSP, currently £102.15pw in 2011/12 available to those with more than 30 years NI contributions) and maximum second state pensions (SERPS and S2P). This contrasts with the maximum £7,280 payable if we move to the proposed £140 per week flat rate system. It would affect most higher earners and those who do not qualify for any kind of pension credits or means tested pension top ups. At present almost 1 in 2 pensioners are eligible for top ups of some kind but for those who do not qualify for state assistance over and above the basic state pension the changes to state pension rules looks likely to mean a significant reduction in available benefits over the coming decades, with less effect on those retiring sooner, especially in the next 10 years.
As a point of interest if the new rules all come in when proposed (but it looks likely they will be brought forwards) it will be into the 2080’s before everyone is on the same rate. Until then there will be a mixture of different regimes and people will have multiple pensions (private and state) with different rules and retirement ages applying depending on age and pension structure.
This makes it nigh on impossible to accurately calculate one’s own state pension benefits until the point you reach them. Indeed even the DWP are not really sure what income a pensioner will get until they reach state pension age (65 and rising). As an IFA it makes it financially impractical to charge a client to work this out. The time and cost involved outweigh the benefit!
Contracting out (called SERPS up until April 2002 and S2P afterwards) will soon no longer be available from money purchase schemes, which includes personal pensions and SIPPs – see also http://greenfinancial.blogspot.com/2011/12/contracting-out-serps-s2p-all-that.html
It used to be the case, that as an IFA, I could estimate whether it was ‘worth’ contracting out or not. There were a multitude of individual factors but the biggest was often if aged under or over 45. So the ending of contracting out from money purchase schemes is a welcome simplification but as indicated above the change to the new regime will bring complification [ED: not a real word but should be] well into the 2080s. Again, on the plus side, the new rules should benefit lower earners.
But what is the detriment to higher earners?
The loss of the income as stated at outset in this article is one but there is another. The impact on attaining qualification for the new ‘flexible drawdown’
- download Green Financial guide here: http://www.iangreen.com/downloads/Flexible.pdf
or view on facebook here:
http://www.facebook.com/media/set/?set=a.279726955386751.88831.136170059742442&type=1&l=b96248bd07
This requires a lifetime pension income provision of at least £20,000. So having state benefits of £13,000+ goes much further towards this than £7,280! If you had the £13,606 to buy a comparable annuity to top up to £20,000 would mean you’d need a personal pension of about £93,000 to buy the annuity. At the lower state pension income you’d need more like £200,000 to top up.
To repeat a fact I tweeted last year, to purchase an annuity (so income for life) on the same terms as the state pension a 65 year old male would need a private pension fund of £310,343.19
So in summary, pension and state pension simplification is of course welcomed by all, especially me as I will be far better placed to assist clients in calculating what there state pension entitlement might be. But the journey to a simple state pension regime is far from defined and will be a long journey whatever direction it takes.
Under current proposals I’ll be aged 109 when all pensioners are on a flat rate pension income!
For those retiring in the next ten years, there is not so much to worry about as the status quo all but applies, with changes to retirement age (upwards, see link to calculator below to work out yours) being the main factor coming slowly in.
But for those retiring 10 years out, especially those who aspire to or consider they will have taxable income at the higher rate of tax it is well worth making sure your pension – and most importantly forecast pension income - is reviewed to ensure it is on track to meet your aims.
If you are a pension or retirement income client of Green Financial or would be interested in becoming one, please do contact us. We’d love to help if possible.
Further Reading and Resources
28 page Green Financial Retirement Planning Guide - http://www.iangreen.com/downloads/Retirement.pdf
Government Money Advice Service - http://www.moneyadviceservice.org.uk/yourmoney/pensions_and_retirement/default.aspx
State Pension Age Calculator -
http://pensions-service.direct.gov.uk/en/state-pension-age-calculator/home.asp
Getting a State Pension Forecast - http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/StatePensionforecast/DG_10014008
Green PEAs – The Green financial Pension Evaluation and Analysis Service for personal pensions -
http://www.iangreen.com/pensionperformance.php
Thursday, 14 July 2011
Could you live on £140 per week? or £161 million for life?
The Government has recently proposed a single-tier, flat-rate state pension worth around £140 a week, and are currently consulting on how this might be introduced in 2015 at the earliest. Recent research from Standard Life has revealed that almost two out of three people (63%) think they couldn't live on £140 a week in retirement, rising to 72% for the 55 and overs.
And with more than one in six Brits (17%) not doing any financial planning, now is a excellent time to consider your own financial planning and ensure it is up to date (or exists!)
And in this sense, retirement planning is not just pensions, although they play a big part. Much of my work with clients is showing how to provide income in retirement, that won't run out before you do.
Whether that is improving and fine tuning your pensions, considering other sources of future income such as property rental income or investment income or something else entirely.
One thing my work does not include is a recommendation to invest in lottery tickets just in case you are the next lucky winner of £161 million! Although if the recent UK big winner is reading this, I'd be delighted to help with future tax efficient income planning ;-)
And with more than one in six Brits (17%) not doing any financial planning, now is a excellent time to consider your own financial planning and ensure it is up to date (or exists!)
And in this sense, retirement planning is not just pensions, although they play a big part. Much of my work with clients is showing how to provide income in retirement, that won't run out before you do.
Whether that is improving and fine tuning your pensions, considering other sources of future income such as property rental income or investment income or something else entirely.
One thing my work does not include is a recommendation to invest in lottery tickets just in case you are the next lucky winner of £161 million! Although if the recent UK big winner is reading this, I'd be delighted to help with future tax efficient income planning ;-)
Monday, 7 February 2011
What are you doing on your 65th birthday?
It used to be that 65 was the age for retirement after working a lifetime for one company. For most of us that is no longer the case.
Retirement is no longer an event celebrated on one's 65th birthday
- it is a period of life when one is perhaps no longer earning a regular income from the main employment one undertook until then.
January 1 2011 marked the day that many people consider the first so-called 'baby boomer' turned 65.
As medical science helps us live longer, demographics tells us that life expectancy continues to increase.
With this, the harsh reality of working for longer has set in for many.
Whilst some simply can't afford to retire at 65, others simply don't want to retire.
One of my aims for my clients is to help them have the choice of when to retire through gaining financial independence.
Without this, the choice may be made for us.
Last October, the French parliament raised the retirement age from 60 to 62 - despite rioting in the streets by French citizens in protest.
At about the same time the reforms in Spain mean their retirement age will soon move from 65 to 67 and that is what has happened here in the UK with even older ages being discussed.
Though turning 65 doesn't have to mean mandatory retirement I still suggest that in advance of 'retirement'- whenever that is for you and whatever it may mean, it is worth reviewing your financial situation, principally to ensure you don't outlive your means.
You may like to look at my website on the 'How much is enough?' page
http://www.iangreen.com/timeline.php
Alternatively, as a start, you may wish to consider the LIFESTYLE you wish to maintain during retirement and the LIFE INCOME you'll need.
You may also want to think about financial LIFEBOATS to have at the ready, should the unforseen occur, such as long term care and private medical arrangements
With these numbers in mind you can start to work out if and when you can retire, or what retirement will mean to you.
If you don’t want to do the maths, or the number crunching or any of the ‘financial stuff’ yourself, we'll help you to do that.
Perhaps just as importantly as the figures, we’ll also help you to explore the personal issues that matter to you, such as what you want to do in retirement and who you want to do it with.
You may not know when you want to 'retire' yet.
As a small, bespoke, personal, family business we prefer to take the time to get to know you as retirement approaches.
We promise you won't have to hang on the telephone, or choose push button options.
You'll always be able to speak to a person.
And they will know who you are and what you are doing. You won't have to explain it all, again, to someone else! (sound familiar when calling your bank or utility providers?)
We are not the cheapest, but you can be assured you'll find us of value.
We offer an initial meeting, at our expense, so you can ‘try us out’ to see if we do what we say we will do, and determine if you think we can provide a valuable service for you and most importantly of all to see if you wish to work with us on this important matter.
After all, retirement may well be the longest financial time period in your life after working – a 30 year retirement is longer than childhood, time in education and most mortgages are only 25 years.
Whether with our assistance or not, we wish you a happy, healthy and prosperous retirement, whenever that is and whatever it means to you.
important footnote: This blog post was inspired by an article entitled 'Age is just a number' by Kelly Biasco in the MDRT (www.MDRT.org) magazine 'Round The Table' (www.roundthetable.org) - I urge any financial planners to join MDRT if they meet the qualification criteria as it is an excellent global organisation with tremendous educational resources. MDRT - The Premier Association of Financial Professionals
Retirement is no longer an event celebrated on one's 65th birthday
- it is a period of life when one is perhaps no longer earning a regular income from the main employment one undertook until then.
January 1 2011 marked the day that many people consider the first so-called 'baby boomer' turned 65.
As medical science helps us live longer, demographics tells us that life expectancy continues to increase.
With this, the harsh reality of working for longer has set in for many.
Whilst some simply can't afford to retire at 65, others simply don't want to retire.
One of my aims for my clients is to help them have the choice of when to retire through gaining financial independence.
Without this, the choice may be made for us.
Last October, the French parliament raised the retirement age from 60 to 62 - despite rioting in the streets by French citizens in protest.
At about the same time the reforms in Spain mean their retirement age will soon move from 65 to 67 and that is what has happened here in the UK with even older ages being discussed.
Though turning 65 doesn't have to mean mandatory retirement I still suggest that in advance of 'retirement'- whenever that is for you and whatever it may mean, it is worth reviewing your financial situation, principally to ensure you don't outlive your means.
You may like to look at my website on the 'How much is enough?' page
http://www.iangreen.com/timeline.php
Alternatively, as a start, you may wish to consider the LIFESTYLE you wish to maintain during retirement and the LIFE INCOME you'll need.
You may also want to think about financial LIFEBOATS to have at the ready, should the unforseen occur, such as long term care and private medical arrangements
With these numbers in mind you can start to work out if and when you can retire, or what retirement will mean to you.
If you don’t want to do the maths, or the number crunching or any of the ‘financial stuff’ yourself, we'll help you to do that.
Perhaps just as importantly as the figures, we’ll also help you to explore the personal issues that matter to you, such as what you want to do in retirement and who you want to do it with.
You may not know when you want to 'retire' yet.
As a small, bespoke, personal, family business we prefer to take the time to get to know you as retirement approaches.
We promise you won't have to hang on the telephone, or choose push button options.
You'll always be able to speak to a person.
And they will know who you are and what you are doing. You won't have to explain it all, again, to someone else! (sound familiar when calling your bank or utility providers?)
We are not the cheapest, but you can be assured you'll find us of value.
We offer an initial meeting, at our expense, so you can ‘try us out’ to see if we do what we say we will do, and determine if you think we can provide a valuable service for you and most importantly of all to see if you wish to work with us on this important matter.
After all, retirement may well be the longest financial time period in your life after working – a 30 year retirement is longer than childhood, time in education and most mortgages are only 25 years.
Whether with our assistance or not, we wish you a happy, healthy and prosperous retirement, whenever that is and whatever it means to you.
important footnote: This blog post was inspired by an article entitled 'Age is just a number' by Kelly Biasco in the MDRT (www.MDRT.org) magazine 'Round The Table' (www.roundthetable.org) - I urge any financial planners to join MDRT if they meet the qualification criteria as it is an excellent global organisation with tremendous educational resources. MDRT - The Premier Association of Financial Professionals
Thursday, 9 December 2010
Crikey! - Good News on Pensions
Today, the government has given more details of how it is planning to make changes to pension legislation from April 2011.
These include:
• no specific age deadline for buying an annuity
• a cap on the amount "drawndown" annually from a pension pot by an individual without buying an annuity
• a withdrawal of this cap if the individual can prove they have enough income to never run out and rely on the state.
The level set for this cap, and the minimum income required for the cap to be taken away, will be part of an eight-week consultation on the proposals.
Regular readers and clients of Green Financial would have been aware that there was an interim measure announced in the budget that increased the maximum annuity age from 75 to 77.
Assuming the new proposals get through Parliament the new rules should be in place by April 2011.
One of the best announcements, in my opinion, was the removal for many of income drawdown limits. As long as a lifetime income of £20,000+ can be secured, there will be no limit. In effect, you’ll have to show that you won’t run your fund down to nothing and THEN go cap in hand to the state for benefits. Thus rewarding those that save a decent sum into their pension, letting them extract a level more commensurate with what they were used to during their working lifetime.
There is a sting in the tail – tax on death benefits looks set to rise to 55% from 35% thus making any kind of pension related / inheritance tax loopholes look unlikely but this is a fair trade off given the positives and the real purpose of pensions ie to provide income in retirement, not to bypass inheritance tax for future generations
It remains to be seen what the actual effect of deferring annuity purchase past 75 will be as ‘mortality drag’ may have a detrimental impact.
Mark Hoban, financial secretary to the Treasury says "The more you save for retirement, the more control and flexibility you will have and ultimately, the more you will be able to pass on to your family on death. Combined with the tax breaks available on pensions, these simple messages will be very popular with investors."
To encourage people to take greater responsibility for their financial future, including in retirement, we need to give people greater flexibility over how they use the savings they have accumulated”
I started on a positive but cynically perhaps, will finish on a slight negative. Let’s hope, unlike so much other recent legislative change, that the positive ‘headlines’ are not undermined with negative detail. More on the new proposals as the details emerge…
Ian Green
These include:
• no specific age deadline for buying an annuity
• a cap on the amount "drawndown" annually from a pension pot by an individual without buying an annuity
• a withdrawal of this cap if the individual can prove they have enough income to never run out and rely on the state.
The level set for this cap, and the minimum income required for the cap to be taken away, will be part of an eight-week consultation on the proposals.
Regular readers and clients of Green Financial would have been aware that there was an interim measure announced in the budget that increased the maximum annuity age from 75 to 77.
Assuming the new proposals get through Parliament the new rules should be in place by April 2011.
One of the best announcements, in my opinion, was the removal for many of income drawdown limits. As long as a lifetime income of £20,000+ can be secured, there will be no limit. In effect, you’ll have to show that you won’t run your fund down to nothing and THEN go cap in hand to the state for benefits. Thus rewarding those that save a decent sum into their pension, letting them extract a level more commensurate with what they were used to during their working lifetime.
There is a sting in the tail – tax on death benefits looks set to rise to 55% from 35% thus making any kind of pension related / inheritance tax loopholes look unlikely but this is a fair trade off given the positives and the real purpose of pensions ie to provide income in retirement, not to bypass inheritance tax for future generations
It remains to be seen what the actual effect of deferring annuity purchase past 75 will be as ‘mortality drag’ may have a detrimental impact.
Mark Hoban, financial secretary to the Treasury says "The more you save for retirement, the more control and flexibility you will have and ultimately, the more you will be able to pass on to your family on death. Combined with the tax breaks available on pensions, these simple messages will be very popular with investors."
To encourage people to take greater responsibility for their financial future, including in retirement, we need to give people greater flexibility over how they use the savings they have accumulated”
I started on a positive but cynically perhaps, will finish on a slight negative. Let’s hope, unlike so much other recent legislative change, that the positive ‘headlines’ are not undermined with negative detail. More on the new proposals as the details emerge…
Ian Green
Tuesday, 19 October 2010
Dear Diary, Tuesday
I was so busy last week I didn’t have time to blog.
So this week I thought I’d write up a diary of last week to give a little insight as to what I get up to, where I do it and who I do it with!
Tuesday 12th October
An early start as I head into The City for a breakfast meeting with one of our key business/technology supplier/partners – Standard Life.
Green Financial use the Standard Life Wrap as a core part of our wealth management proposition for clients so keeping up to date with changes and improvements – and ironing out the occasional problem – is a key strategic job for me.
The time passes pleasantly and quickly eased by a delicious coffee from a small, niche, establishment you may not have heard of. If you ever notice a shop called tucked away on a street near you, do give it a go. I think 'Starbucks' might catch on…
Straight off then to the Hoxton Hotel. The location of recent client visits mean I get a hatrick of mentions on Twitter from the Hoxton Hoxbot!
Today though is an all day training course on a piece of software I use for client lifetime cashflow forecasting.
I learned a number of new things, brushed up on a few elements I was rusty on but as always, despite the course and trainer being of the highest quality I would argue I learned as much from my fellow delegates as the material itself.
Perhaps the biggest eye opener for me in using this software in recent times, given where we are as a nation economically, and why my clients consult with me on their financial planning, is the use of annuities in lifetime cashflow creation. Annuity has almost become a dirty word in some quarters but there is no doubt that for the right person, at the right time, an annuity can be key to a lifetime of income – or to put it another way, a great way of ensuring that bills can be paid for life without worrying about running out of money. But as with all similar things, they are not right for all folks at all times.
More information on how I use this software with clients is on my website at http://www.iangreen.com/timeline.php
As I cram onto the tube in rush hour to return home I consider myself thankful that I don’t have to do this everyday now that Green financial is located ten minutes from my house in Putney and make a mental note to sign up to the Boris Bike scheme to avoid the crush in future.
So this week I thought I’d write up a diary of last week to give a little insight as to what I get up to, where I do it and who I do it with!
Tuesday 12th October
An early start as I head into The City for a breakfast meeting with one of our key business/technology supplier/partners – Standard Life.
Green Financial use the Standard Life Wrap as a core part of our wealth management proposition for clients so keeping up to date with changes and improvements – and ironing out the occasional problem – is a key strategic job for me.
The time passes pleasantly and quickly eased by a delicious coffee from a small, niche, establishment you may not have heard of. If you ever notice a shop called tucked away on a street near you, do give it a go. I think 'Starbucks' might catch on…
Straight off then to the Hoxton Hotel. The location of recent client visits mean I get a hatrick of mentions on Twitter from the Hoxton Hoxbot!
Today though is an all day training course on a piece of software I use for client lifetime cashflow forecasting.
I learned a number of new things, brushed up on a few elements I was rusty on but as always, despite the course and trainer being of the highest quality I would argue I learned as much from my fellow delegates as the material itself.
Perhaps the biggest eye opener for me in using this software in recent times, given where we are as a nation economically, and why my clients consult with me on their financial planning, is the use of annuities in lifetime cashflow creation. Annuity has almost become a dirty word in some quarters but there is no doubt that for the right person, at the right time, an annuity can be key to a lifetime of income – or to put it another way, a great way of ensuring that bills can be paid for life without worrying about running out of money. But as with all similar things, they are not right for all folks at all times.
More information on how I use this software with clients is on my website at http://www.iangreen.com/timeline.php
As I cram onto the tube in rush hour to return home I consider myself thankful that I don’t have to do this everyday now that Green financial is located ten minutes from my house in Putney and make a mental note to sign up to the Boris Bike scheme to avoid the crush in future.
Monday, 18 October 2010
Dear Diary, Monday
I was so busy last week I didn’t have time to blog.
So this week I thought I’d write up a diary of last week to give a little insight as to what I get up to, where I do it and who I do it with!
Monday 11th October
Having made my son what I thought was a breakfast fit for a hard day at school, a delicious bowl of porridge with chopped bananas, I was greeted with the response that ‘he’d rather have coco pops’. Now I know how Jamie Oliver feels!
A busy retirement
The working week then began with a meeting in the Putney office with a client who recently retired from a career in banking. As with many retired clients he seems to be busier now than when he was working!
The meeting was around the ongoing management of an investment portfolio and the portfolio construction for the pension retirement income. As is usual in situations such as this we also strayed into estate planning matters. I now have a number of questions to answer and finer details to clarify before we proceed further.
Family Matters
Then a dash out of the office to the train station (anyone who is also on www.foursquare.com could track me at this point!) and to ‘Sunny Brighton’.
The pleasure of meeting a prospective new client was tinged with sadness at the circumstances. Too often tragedy strikes when we least expect it and this gentleman was dealing with a recent bereavement of a too young wife and mother to a too young family.
Despite the circumstances the time together was positive and I feel well able to help (in purely financial matters only) the family move on from what has happened and position themselves for their future.
Life is a jigsaw
Then straight back to Putney for a meeting in the office with a client that I have only fairly recently started working with. It has taken the best part of six months to unravel their previous financial position thanks to the existing providers giving almost no information on small matters like performance or costs! We have started to work out a plan to determine if they have enough money to last a lifetime. A huge part of my work is helping people to discover “How much is enough?”. With this client the pieces of the jigsaw are almost all in place but to continue the analogy there seems to be a corner piece missing. I have left them with a few questions and if the answers are positive then we’ll complete the jigsaw and admire the view – but if the answers are not as hoped we may well be scrabbling around on the floor or simply hoping to find the missing piece down the back of the sofa…
Injury Time
Monday finishes with a particularly pleasing event for me. My first game of squash for over six months, thanks to a knee injury in the spring and then tearing an ankle ligament in the summer after falling – and in case you wonder the fall was non-sports related - and also non alcohol related before you ask!
To hammer home the time that had passed my regular squash partner had no idea I had set up Green Financial as a stand alone entity and last time we played my wife and I had just had the 12 week scan for the new baby, now due any week!
The score on the night: Well, that’s not important. It’s the taking part that counts…
So this week I thought I’d write up a diary of last week to give a little insight as to what I get up to, where I do it and who I do it with!
Monday 11th October
Having made my son what I thought was a breakfast fit for a hard day at school, a delicious bowl of porridge with chopped bananas, I was greeted with the response that ‘he’d rather have coco pops’. Now I know how Jamie Oliver feels!
A busy retirement
The working week then began with a meeting in the Putney office with a client who recently retired from a career in banking. As with many retired clients he seems to be busier now than when he was working!
The meeting was around the ongoing management of an investment portfolio and the portfolio construction for the pension retirement income. As is usual in situations such as this we also strayed into estate planning matters. I now have a number of questions to answer and finer details to clarify before we proceed further.
Family Matters
Then a dash out of the office to the train station (anyone who is also on www.foursquare.com could track me at this point!) and to ‘Sunny Brighton’.
The pleasure of meeting a prospective new client was tinged with sadness at the circumstances. Too often tragedy strikes when we least expect it and this gentleman was dealing with a recent bereavement of a too young wife and mother to a too young family.
Despite the circumstances the time together was positive and I feel well able to help (in purely financial matters only) the family move on from what has happened and position themselves for their future.
Life is a jigsaw
Then straight back to Putney for a meeting in the office with a client that I have only fairly recently started working with. It has taken the best part of six months to unravel their previous financial position thanks to the existing providers giving almost no information on small matters like performance or costs! We have started to work out a plan to determine if they have enough money to last a lifetime. A huge part of my work is helping people to discover “How much is enough?”. With this client the pieces of the jigsaw are almost all in place but to continue the analogy there seems to be a corner piece missing. I have left them with a few questions and if the answers are positive then we’ll complete the jigsaw and admire the view – but if the answers are not as hoped we may well be scrabbling around on the floor or simply hoping to find the missing piece down the back of the sofa…
Injury Time
Monday finishes with a particularly pleasing event for me. My first game of squash for over six months, thanks to a knee injury in the spring and then tearing an ankle ligament in the summer after falling – and in case you wonder the fall was non-sports related - and also non alcohol related before you ask!
To hammer home the time that had passed my regular squash partner had no idea I had set up Green Financial as a stand alone entity and last time we played my wife and I had just had the 12 week scan for the new baby, now due any week!
The score on the night: Well, that’s not important. It’s the taking part that counts…
Thursday, 8 July 2010
The 'P' Word
I read at the weekend that "Government spending on social security benefits has almost doubled over the last 30 years". This came from the Office for National Statistics in their annual Social trends report.
Allowing for inflation the amout rose from £69billion to £135billion. The item that caught my eye was that in 2008-09 almost half the bill went in pensions. Reading further it is plain to see that demographic changes including the increased size of the elderly population are a massive part of this. The so called baby boomer generation coming into retirement meant that over £50billion was spent on the basic state pension alone.
Of great interest to me, as a financial planner that has advised on pensions for over 15 years now, was the expressed views in the report from the public. Six out of ten people agreed that "the Government [IG: and remember this is not supposed to be political, it generally refers to whoever is in power at the time, rather than being aimed at a specific party] should be mainly responsible for ensuring that people have enough money to live on in retirement"
Personally I have no trouble agreeing with that statement. However, based on my professional experience and knowledge of the welfare system I am afraid I just don't see it happening. Whether or not certain elements come in to play, such as indexing state pensions to more realistic benchmarks, it is a fact that for many people, the state pension is just about subsistence level. There certainly isn't much room for the finer things in life (said tongue in cheek - I am not talking about having your own private jet, more like just running a new private car!) when living on around £5,000 a year [basic state pension-single person-£97.65 per week 2010-11]
Over the years I have come to grow more and more concerned over the P word - Pension. Generally I find clients and the population in general (if the papers are to be believed) have become fearful, mistrustful, bored, frustrated and fed up with Pensions. And no wonder. From the constantly changing rules and regulations in my world to the high profile failures of pension providers such as Equitable Life, the 'black hole' in company schemes such as ITV and British Airways, the 'fatcat' pensions for company directors and MPs whilst lower ranked staff and civil servants see benfits cut, the personal pension mis-selling of the past, the ever creeping increase in retirement ages, the list just goes on and on and on.
And don't even get me started on the unfairness of means tested benefits in retirement - there is a blogpost for another day...
So what to do? What to think?
Despite all these changes my view remains pretty much the same as it has for over a decade. That if one wants to have a reasonable level of income in retirement, commensurate with what one was used to whilst working, then the basic state pension will provide something, but probably not enough. And therefore it falls to us, the individual, to take responsibility for saving more, elsewhere, to 'top-up' our retirement income to the level we desire.
There are many ways to save for retirement in addition to pensions and I refer back to a previous posting I made. What I do for my clients is try to help them answer the question 'How much is enough?' What do I actually need to retire in the fashion I desire for me and my family? If you'd like help answering that question, I'd be delighted to assist. And remember, the answer does not need to include the P word.
Allowing for inflation the amout rose from £69billion to £135billion. The item that caught my eye was that in 2008-09 almost half the bill went in pensions. Reading further it is plain to see that demographic changes including the increased size of the elderly population are a massive part of this. The so called baby boomer generation coming into retirement meant that over £50billion was spent on the basic state pension alone.
Of great interest to me, as a financial planner that has advised on pensions for over 15 years now, was the expressed views in the report from the public. Six out of ten people agreed that "the Government [IG: and remember this is not supposed to be political, it generally refers to whoever is in power at the time, rather than being aimed at a specific party] should be mainly responsible for ensuring that people have enough money to live on in retirement"
Personally I have no trouble agreeing with that statement. However, based on my professional experience and knowledge of the welfare system I am afraid I just don't see it happening. Whether or not certain elements come in to play, such as indexing state pensions to more realistic benchmarks, it is a fact that for many people, the state pension is just about subsistence level. There certainly isn't much room for the finer things in life (said tongue in cheek - I am not talking about having your own private jet, more like just running a new private car!) when living on around £5,000 a year [basic state pension-single person-£97.65 per week 2010-11]
Over the years I have come to grow more and more concerned over the P word - Pension. Generally I find clients and the population in general (if the papers are to be believed) have become fearful, mistrustful, bored, frustrated and fed up with Pensions. And no wonder. From the constantly changing rules and regulations in my world to the high profile failures of pension providers such as Equitable Life, the 'black hole' in company schemes such as ITV and British Airways, the 'fatcat' pensions for company directors and MPs whilst lower ranked staff and civil servants see benfits cut, the personal pension mis-selling of the past, the ever creeping increase in retirement ages, the list just goes on and on and on.
And don't even get me started on the unfairness of means tested benefits in retirement - there is a blogpost for another day...
So what to do? What to think?
Despite all these changes my view remains pretty much the same as it has for over a decade. That if one wants to have a reasonable level of income in retirement, commensurate with what one was used to whilst working, then the basic state pension will provide something, but probably not enough. And therefore it falls to us, the individual, to take responsibility for saving more, elsewhere, to 'top-up' our retirement income to the level we desire.
There are many ways to save for retirement in addition to pensions and I refer back to a previous posting I made. What I do for my clients is try to help them answer the question 'How much is enough?' What do I actually need to retire in the fashion I desire for me and my family? If you'd like help answering that question, I'd be delighted to assist. And remember, the answer does not need to include the P word.
Wednesday, 30 June 2010
Financial Simplicity
Spent yesterday lunchtime with a retired client, finalising their investment and estate planning.
Also spent some time clearing out their old paper files, splitting everything into two piles - one to shred and recycle - the other to keep.
It often occurs to me that something like this, which comes as second nature to me and is a task easily accomplished is actually a daunting process for many people.
It has reminded me of my stated 1-word overriding aim for retired and retiring clients: Simplicity.
Or in more than one word, it is my belief that as clients approach, enter and enjoy retirement - whatever that means to them - what they value most from me, their trusted adviser, is the ability to bring 'simplicity' to managing their finances.
Sure, it can be a complex process and products and financial stuff can be complicated and jargon filled but that is where I come in. I always maintain that for most of my clients it is not a question of 'capability' - they could understand it all just as well as I do if they spent the same amount of time as I do on it. It is a question of 'capacity'. They have other things to do with life, such as spending time with family, pursuing hobbies or charity involvement. Sports, holidays, travel, golf, mowing the lawn, the shopping! The list is endless and stretches from the lifetime dream to the mundane.
So my job is translator. From jargon to understandable.
My job is entertainer. Making the dry and necessary, interesting and informative.
My job is educator. Helping clients help themselves where possible and filling in the gaps where needed, either myself or by introducing a fellow professional / specialist in areas where I don't operate.
The reward for my job? Of course there is the financial but I'll finish this post where I started it, with my retired client, Mrs B, who was kind enough to say (and even kinder to agree I could repeat these words)
"Ian is the only financial person I've dealt with in the last 50 years who actually makes sense and explains things in a way I can understand"
Thanks, Mrs B.
Reward enough right there :-)
Also spent some time clearing out their old paper files, splitting everything into two piles - one to shred and recycle - the other to keep.
It often occurs to me that something like this, which comes as second nature to me and is a task easily accomplished is actually a daunting process for many people.
It has reminded me of my stated 1-word overriding aim for retired and retiring clients: Simplicity.
Or in more than one word, it is my belief that as clients approach, enter and enjoy retirement - whatever that means to them - what they value most from me, their trusted adviser, is the ability to bring 'simplicity' to managing their finances.
Sure, it can be a complex process and products and financial stuff can be complicated and jargon filled but that is where I come in. I always maintain that for most of my clients it is not a question of 'capability' - they could understand it all just as well as I do if they spent the same amount of time as I do on it. It is a question of 'capacity'. They have other things to do with life, such as spending time with family, pursuing hobbies or charity involvement. Sports, holidays, travel, golf, mowing the lawn, the shopping! The list is endless and stretches from the lifetime dream to the mundane.
So my job is translator. From jargon to understandable.
My job is entertainer. Making the dry and necessary, interesting and informative.
My job is educator. Helping clients help themselves where possible and filling in the gaps where needed, either myself or by introducing a fellow professional / specialist in areas where I don't operate.
The reward for my job? Of course there is the financial but I'll finish this post where I started it, with my retired client, Mrs B, who was kind enough to say (and even kinder to agree I could repeat these words)
"Ian is the only financial person I've dealt with in the last 50 years who actually makes sense and explains things in a way I can understand"
Thanks, Mrs B.
Reward enough right there :-)
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