Over half of Brits would struggle financially within three months if illness struck
• 52% of UK workers could survive financially for only three months on statutory sick pay
• 23% would neglect their health; 12% would cut back on cigarettes or alcohol
• 14% say they’d have to move house if they were unable to work.
New research from Aviva – see http://www.aviva.com/media/news/14395/ for the full press release- reveals that over half of UK workers (52%) would be unable to survive financially for more than three months if they were off work with an illness. Around a third (30%) say they’d survive for less than a month. Less than one in ten (9%) say they’d remain solvent for a year or more.
Aviva’s research, conducted to highlight both employer and employee concerns about absence issues, uncovers a worrying protection gap. It also reveals that many people aren’t aware of the level of support they’d receive if they were unable to work due to illness – meaning that in reality, their finances may not stretch as far as they think.
While it’s reassuring to see that two in ten (19%) employees know how much Statutory Sick Pay they’d be entitled to, a quarter (26%) think they’d receive considerably more: 16% of respondents believe that they would be entitled to over twice as much benefit.
Worryingly, Aviva’s research reveals that if finances were tight, some people would neglect their health in favour of non-essentials. Nearly a quarter (23%) would put their health at risk - with 14% saying they’d miss important health checks and one in ten (9%) admitting they’d put up with health ailments. One in ten (12%) say they’d cut down on cigarettes or alcohol.
Nearly half (49%) say they’d eat cheaper supermarket offers and fast foods, while one in five would cut down on family holidays. A similar proportion (19%) say they’d use less heating/electricity.
Unsurprisingly nearly seven in ten (65%) workers cite financial concerns as the main reason to get back to work quickly if they are off sick. Regaining a sense of purpose (28%), getting well (21%) and providing for their families (16%) are also high priorities.
While the motivation to return to work is apparent, the research reveals that many workers are afraid of returning to the workplace after a long-term illness. A significant number of people (44%) fear that going back to work could cause a relapse of their condition and a quarter (24%) worry that they won’t be able to work to full capacity.
Steve Bridger, head of group risk, Aviva, UK Health says: “It’s understandable that over eighty per cent of people think long-term sickness is something that happens to other people. However in reality you never know what’s around the corner and few people have the savings available to support themselves and their families for very long. Employment and Support Allowance can come to as little as £67.50 a week – even less than Statutory Sick Pay - which in many cases would hardly cover a family’s food shopping, let alone their mortgage and other necessary expenses."
Ian Green: Income protection insurance – which I prefer to call ‘expenditure protection insurance’ can help address many of the issues identified above, and provide peace of mind to individuals who have enough to deal with when they are on the receiving end of unwelcome health news.
Why not have a look at my guide to protection, either at:
http://www.iangreen.com/downloads/protection.pdf
or in the photo albums at
www.facebook.com/GreenFinancial
Aviva finished by stating : Four fifths (80%) of respondents thought it was unlikely that they would actually have to deal with long term sickness, which perhaps accounts for their lack of preparation. Government figures show that over 2.1 million 18-64 year olds were claiming state benefit for incapacity in November 2009.
Showing posts with label lifetime income. Show all posts
Showing posts with label lifetime income. Show all posts
Monday, 14 November 2011
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 ;-)
Tuesday, 12 July 2011
Annuities, are they all bad?
Henry purchased his annuity (income for life) in 1962 and it paid out, year after year, until Henry passed away in 2010
– 48 years of income.
Annuities generally get a bad press, mostly based around the fact you lose control of a lump sum and if you die you lose the lot with nothing passing to your family.
They are the perceived bad points and whilst true in part do not tell the whole story.
The perception of losing control of a lump sum is not always true, especially if the annuity is purchased from a pension. Perhaps this is the fault of the pension providers who always give us an annual statement with a lump sum figure, yet we should understand from the day we start paying into a private pension it is only ever (under today’s rules) a quarter of the accrued amount that will be payable as a tax free lump sum. The remainder has to be paid as taxable income.
This blog post is not meant to be pro-annuity – As with all my work I remain neutral, preferring not to let personal perspectives get in the way of doing whatever is best and most suitable for any given client at any given time. The aim of this article is just to point out a few positive aspects of annuities I have found in the course of my work, the first being for those that live longer, and we are told life expectancy is increasing all the time, an annuity can represent fantastic value for money.
Living too long or Running out of money
In many ways an annuity could be likened to buying insurance. One is insuring oneself against ‘living too long’, or to put it another way, running out of money.
When financial planning for clients, aiming to generate and provide income for life, one of the greater challenges I face on their behalf is to balance the risk and reward profile, keeping enough money in reserve to fall back on whilst investing in assets that will outpace inflation, thus retaining standard of living and purchasing power as time goes by.
An index linked annuity can address this, providing a definite source of income, for the remainder of life, increasing in line with inflation.
That said, annuity rates today are much lower than in the last 20 or 30 years or so, their rates being closely allied to interest rates and inflation. At the same time life expectancy has increased. In 1970 a man retiring at 65 could expect to receive a pension for 14 years. Today that is expected to be nearer 24 years of payment.
Without going into the maths and actuarial reasons (but for the more technically minded it is known, rather brutally, as ‘mortality drag’) there is a form of cross subsidy at work with annuities whereby, in simple terms, those that die soon after purchasing an annuity subsidise those that live a long time. The approximate cost of this for someone entering Pension Income Drawdown (see other blog posts for more info on this product) is around 0.5% at age 60 – a small price to pay? It rises to around 1% by age 70. However by age 85 the cost is around 5%. So the decade between age 70 and 80 is sometimes referred to as the ‘Annuity Age’ when it may well be sensible to convert pensions to annuities (but always take individual, professional, fee based advice on this)
Another positive for annuities is the simplicity they bring in financial planning, alongside the certainty. A regular, trackable, easy to understand level of income without any concerns over investment performance or otherwise to sustain that income.
But is there an optimum amount, what with the income being taxable? Arguably if you could keep your annuity income under the higher rate tax threshold and create other income that was non taxable elsewhere it may prove tax advantageous for you, especially if you received higher rate tax relief on the way in (in simple term, under current rules, tax relief of 40% on the way in, and only paying tax at 20% on the way out). Again, another area perhaps to take individual, professional, fee based advice on.
Another reason to not have ‘too much’ (crazy idea I know) in your pension when buying an annuity is a recent development by annuity providers based on demographics. Amazingly the size of the purchase price now goes against the policyholder! They now reason the size of the fund buying the annuity reflects social status, arguing a large purchase price means a wealthy client, and wealthy people live longer than poor ones.
The astute client will ensure their financial adviser knows this and will investigate whether to help them to purchase annuities in tranches to maximise income from various providers rather than use the full fund at once with one annuity company.
There are many factors to consider when purchasing an annuity. My other blog post today consists of my helpsheet on this matter with areas and variables to consider before purchase.
Watch out when doing a ‘DIY’ job on annuity purchase. ‘best buy’ tables in newspapers and online are often manipulated to show best rates (ie for a man of exactly 65) and if you do not fit the exact criteria you’ll find yourself worse off. It is also unusual to find your pension provider is also the best annuity income provider so don’t just buy from them, especially if a bank product. Shop around (see other blog post today).
Consider engaging a financial adviser with specialist annuity research software who can pinpoint the annuity provider who will give you the most money (known as exercising your ‘open market option’) for your unique, personal position. Make sure they charge a fee for this service so you can be sure they are not being swayed by a later commission on an annuity purchase. If you wish the adviser to subsequently help with the annuity purchase transaction and implementation, again look for a fee charging adviser so all your money is at work generating you income, not paying a commission.
In summary, conventional annuities are an excellent way of securing a fixed income for life, with or without things such as inflation linking or benefits for dependents. A series of annuities may work well too, especially for those leaving Income Drawdown pensions as time goes on.
Annuities are certainly not the right answer for all of the people, all of the time,
but they definitely are the right answer for some of the people, some of the time.
Ask yourself, when should you buy an annuity?
Just in case, like Henry Allington, you live to be 113 or older.
Shopping around for lifetime annuities
The Open Market Option
Annuity rates vary from one life company to another, so you should make sure you shop around to get the best deal for you. There are a few things to think about first.
• If you're getting a pension from a personal pension arrangement, your pension provider should send you information between four and six months before you are due to retire, setting out what they will offer you based on the value of your fund. They will also tell you that you can shop around for a higher annuity. About six weeks before you retire your pension provider should give you an estimate of the value of your fund. You can use this to compare products from other providers. This is known as your open market option.
• Don’t assume the same company with which you built up your fund will automatically offer you the best rate. You may do better to shop around and check whether another company could offer you more. The annuity rate you get can affect your income by hundreds of pounds a year for the rest of your life.
• If you're getting a pension from an occupational defined contribution pension scheme, the trustees may buy your annuity for you, but you can also shop around on the open market and find the insurance company with the best annuity rate for you, or your scheme trustees can do this for you if you ask.
It can be difficult or impossible to change your lifetime annuity provider after you've bought your lifetime annuity, so take some time to choose the one that’s right for you.
Check what your existing provider offers
Before shopping around, make sure you understand what your existing provider is offering you. Check:
• whether your provider offers a guaranteed annuity rate. This is not the same as a guarantee period. A guaranteed annuity rate means that the provider has to offer a minimum annuity rate for your pension fund. Now that annuity rates are a lot lower than in the past, a guaranteed annuity rate can be very valuable and could give a higher retirement income than can currently be bought on the open market;
• whether your provider will charge your fund if you buy your annuity from another company.
Your existing provider will usually give you a quote for a specific type of annuity. Make sure you get a quote for the type of annuity you want, not just the one the provider offers you.
How long have you got?
Annuity quotes are usually valid for between 7 and 28 days.
If you change your mind – you may have the right to withdraw or cancel. If so, the provider will tell you and also tell you how quickly you must act.
Shopping around for your annuity
1. Get an estimate of the value of your pension fund, taking account of any charges, from your provider.
2. Decide whether you want to take a tax-free lump sum, and if so, how much (usually up to a quarter of your fund). If you decide to take a tax-free lump sum, deduct it from the pension fund value your pension provider gives you.
3. Decide whether you want:
o a single or joint-life annuity. If joint life, whether the pension paid to your partner is paid in full or reduced (say by a third) – or
o a level or escalating annuity
4. Think about whether you want your annuity to continue to be paid for a specific number of years (5 or 10), should you die shortly after you buy it.
5. Does your fund need to be a certain size to qualify for the better rates offered by another company? Some firms may not be interested in providing an annuity for small sums.
6. Are you a smoker? If you are, you may get a better rate from some annuity providers.
7. Do you have a medical condition that could reduce your life expectancy? If you do, you may get a better rate from some annuity providers. Some providers of impaired life annuities will also accept pension funds of less than £5,000.
You should now have the facts you need to get quotes from a range of providers.
Or we can do it for you – contact us to discuss our fees for this service
Annuity rates vary from one life company to another, so you should make sure you shop around to get the best deal for you. There are a few things to think about first.
• If you're getting a pension from a personal pension arrangement, your pension provider should send you information between four and six months before you are due to retire, setting out what they will offer you based on the value of your fund. They will also tell you that you can shop around for a higher annuity. About six weeks before you retire your pension provider should give you an estimate of the value of your fund. You can use this to compare products from other providers. This is known as your open market option.
• Don’t assume the same company with which you built up your fund will automatically offer you the best rate. You may do better to shop around and check whether another company could offer you more. The annuity rate you get can affect your income by hundreds of pounds a year for the rest of your life.
• If you're getting a pension from an occupational defined contribution pension scheme, the trustees may buy your annuity for you, but you can also shop around on the open market and find the insurance company with the best annuity rate for you, or your scheme trustees can do this for you if you ask.
It can be difficult or impossible to change your lifetime annuity provider after you've bought your lifetime annuity, so take some time to choose the one that’s right for you.
Check what your existing provider offers
Before shopping around, make sure you understand what your existing provider is offering you. Check:
• whether your provider offers a guaranteed annuity rate. This is not the same as a guarantee period. A guaranteed annuity rate means that the provider has to offer a minimum annuity rate for your pension fund. Now that annuity rates are a lot lower than in the past, a guaranteed annuity rate can be very valuable and could give a higher retirement income than can currently be bought on the open market;
• whether your provider will charge your fund if you buy your annuity from another company.
Your existing provider will usually give you a quote for a specific type of annuity. Make sure you get a quote for the type of annuity you want, not just the one the provider offers you.
How long have you got?
Annuity quotes are usually valid for between 7 and 28 days.
If you change your mind – you may have the right to withdraw or cancel. If so, the provider will tell you and also tell you how quickly you must act.
Shopping around for your annuity
1. Get an estimate of the value of your pension fund, taking account of any charges, from your provider.
2. Decide whether you want to take a tax-free lump sum, and if so, how much (usually up to a quarter of your fund). If you decide to take a tax-free lump sum, deduct it from the pension fund value your pension provider gives you.
3. Decide whether you want:
o a single or joint-life annuity. If joint life, whether the pension paid to your partner is paid in full or reduced (say by a third) – or
o a level or escalating annuity
4. Think about whether you want your annuity to continue to be paid for a specific number of years (5 or 10), should you die shortly after you buy it.
5. Does your fund need to be a certain size to qualify for the better rates offered by another company? Some firms may not be interested in providing an annuity for small sums.
6. Are you a smoker? If you are, you may get a better rate from some annuity providers.
7. Do you have a medical condition that could reduce your life expectancy? If you do, you may get a better rate from some annuity providers. Some providers of impaired life annuities will also accept pension funds of less than £5,000.
You should now have the facts you need to get quotes from a range of providers.
Or we can do it for you – contact us to discuss our fees for this service
Tuesday, 12 April 2011
Shopping Around for Lifetime Annuities
- The "Open Market Option"
Annuity rates vary from one life company to another, so you should make sure you shop around to get the best deal for you.
There are a few things to think about first.
• If you're getting a pension from a personal pension arrangement, your pension provider should send you information between four and six months before you are due to retire, setting out what they will offer you based on the value of your fund. They will also tell you that you can shop around for a higher annuity. About six weeks before you retire your pension provider should give you an estimate of the value of your fund. You can use this to compare products from other providers. This is known as your open market option.
• Don’t assume the same company with which you built up your fund will automatically offer you the best rate. You may do better to shop around and check whether another company could offer you more. The annuity rate you get can affect your income by hundreds of pounds a year for the rest of your life.
• If you're getting a pension from an occupational defined contribution pension scheme, the trustees may buy your annuity for you, but you can also shop around on the open market and find the insurance company with the best annuity rate for you, or your scheme trustees can do this for you if you ask. It can be difficult or impossible to change your lifetime annuity provider after you've bought your lifetime annuity, so take some time to choose the one that’s right for you.
Check what your existing provider offers
Before shopping around, make sure you understand what your existing provider is offering you. Check:
• Don’t assume the same company with which you built up your fund will automatically offer you the best rate. You may do better to shop around and check whether another company could offer you more. The annuity rate you get can affect your income by hundreds of pounds a year for the rest of your life.
• If you're getting a pension from an occupational defined contribution pension scheme, the trustees may buy your annuity for you, but you can also shop around on the open market and find the insurance company with the best annuity rate for you, or your scheme trustees can do this for you if you ask. It can be difficult or impossible to change your lifetime annuity provider after you've bought your lifetime annuity, so take some time to choose the one that’s right for you.
Check what your existing provider offers
Before shopping around, make sure you understand what your existing provider is offering you. Check:
• whether your provider offers a guaranteed annuity rate. This is not the same as a guarantee period. A guaranteed annuity rate means that the provider has to offer a minimum annuity rate for your pension fund. Now that annuity rates are a lot lower than in the past, a guaranteed annuity rate can be very valuable and could give a higher retirement income than can currently be bought on the open market;
• whether your provider will charge your fund if you buy your annuity from another company. Your existing provider will usually give you a quote for a specific type of annuity. Make sure you get a quote for the type of annuity you want, not just the one the provider offers you. How long have you got? Annuity quotes are usually valid for between 7 and 28 days. If you change your mind – you may have the right to withdraw or cancel. If so, the provider will tell you and also tell you how quickly you must act.
Shopping around for your annuity
1. Get an estimate of the value of your pension fund, taking account of any charges, from your provider.
1. Get an estimate of the value of your pension fund, taking account of any charges, from your provider.
2. Decide whether you want to take a tax-free lump sum, and if so, how much (usually up to a quarter of your fund). If you decide to take a tax-free lump sum, deduct it from the pension fund value your pension provider gives you. Remember, if you have less than £18,000 in total you may be able to take the whole amunt as a tax free sum under the 'triviality' rules.
3. Decide whether you want: - a single or joint-life annuity. If joint life, whether the pension paid to your partner is paid in full or reduced (say by a third) – or - a level or escalating annuity
4. Think about whether you want your annuity to continue to be paid for a specific number of years (5 or 10), should you die shortly after you buy it.
5. Does your fund need to be a certain size to qualify for the better rates offered by another company? Some firms may not be interested in providing an annuity for small sums.
6. Are you a smoker? If you are, you may get a better rate from some annuity providers.
7. Do you have a medical condition that could reduce your life expectancy? If you do, you may get a better rate from some annuity providers. Some providers of impaired life annuities will also accept pension funds of less than £5,000.
You should now have the facts you need to get quotes from a range of providers. Or we can do it for you – our fee is £147 (+VAT).
We can also help you arrange the annuity too, we have a separate fee for that depending on the amount and type of annuity you require.
Contact us for full details.
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.
Subscribe to:
Posts (Atom)