Tapered threshold to be raised by £90,000 to £200,000

Rishi Sunak announces the raising of the Taper threshold.

With doctors and the higher earners in mind tapered thresholds are to be raised by £90,000 and removing anyone with income below £200,000. 

Apparently 98% of NHS consultants and 96% of GPs will now escape the taper. 

Minimum annual allowance will be reduced to £4,000, which Sunak says will only impact those with incomes above £300,000. Altogether this constitutes a £2bn commitment by the Government.

There are no other significant changes and the lifetime allowance will increase in line with CPI for 2020-21, rising to £1,073,100.

Changes to entrepreneurs’ relief

Sunak advises that he will not fully abolish entrepreneurs’ relief but he will undertake  a "sensible reform", reducing the lifetime limit from £10m to £1m. 

These reforms will save £6bn over the next five years and the money will go back to businesses through other measures. 

The changes to entrepreneurs’ relief will increase the amount of tax paid by businesses sold at a profit of over £1million. This should see greater opportunity for advisers and accountants to work together to extract value from these businesses prior to sale, for example through increased employer pension provision.

Other News

The Budget announces that the amount families can save into a JISA or CTF will be more than doubled in 2020-21, increasing from £4,368 to £9,000.

Bull markets laid low by coronavirus

Uncertainty over the impact of Covid-19 is giving the markets their worst scare since the financial crisis

Imagine this: the UK has been gripped by a flu pandemic that started in Asia. As many as 60% of workers are at home — some because they have been laid low, but others because going to the office is impossible. Many are gripped with fear. Fifteen million cases have been confirmed in the UK and the death toll stands at more than 290,000. Burials and cremations are delayed. Anxiety is mounting that a second pandemic will hit.

It is exactly what City regulators war-gamed almost 15 years ago as one of their regular exercises to test the resilience of the financial system. The scenario was deliberately made extreme, to stretch participants to their limits. But last week, financial markets demonstrated what actually happens when panic about the impact of a possible pandemic strikes.

Stock markets endured their worst week since the 2008 financial crisis, with the FTSE 100 plunging more than 11% — 823 points — and America’s Dow Jones diving 12%. The broader S&P 500 lost 11.5%, registering its fastest correction since the Great Depression. About $6 trillion (£4.6 trillion) was wiped off the value of global stocks. In the scramble to gauge the medium-term global economic impact of the coronavirus — officially Covid-19 — consensus was building around a $1 trillion hole.

It is a dramatic shift in sentiment from the start of the year, when stock markets were in the 10th year of a bull run that had followed the 2008 crisis, driven by cheap money poured in by central banks via quantitative easing in response to the near-collapse of the financial sector.

US markets — registering record highs only a week ago — are officially in a correction, technically defined as losing more than 10% from their peak. At the start of the year, markets had thought the unusual cases of pneumonia detected in shoppers at a seafood market in the city of Wuhan would be a crisis contained in China, slowing the national economy. It might snag global supply chains and dent growth, but it was seen as an event that would be a short, sharp shock.

The discovery of cases in Italy changed all that. “Although the markets were complacent about the virus, there was an awareness it was getting worse. When it broke in Italy, it was a clear recognition it was a game-changer,” said Charles Hall, head of research at broker Peel Hunt.

While the numbers resemble nothing like that regulatory war game — there were, at the time of going to press, 23 cases in Britain — there is worrying uncertainty about “the depth, breadth and length of this new coronavirus,” said economists at Nomura. “It is simply too early to tell.”

While China has shut down schools, factories and entire cities, such actions have not yet been needed elsewhere. However, events are being cancelled, including this week’s Geneva International Motor Show and Facebook’s annual developer conference in San Francisco. Berlin’s International Hospitality Investment Forum has been delayed. Bookmaker PaddyPower said bets indicated a 60% chance the Tokyo Olympics this summer would be cancelled.

The organisers of Mipim, the property industry’s annual jamboree in Cannes, yesterday postponed the March event until June.

British Airways owner IAG provided a neat summary of the situation on Friday. “We are currently experiencing demand weakness on Asian and European routes and a weakening of business travel across our network resulting from the cancellation of industry events and corporate travel restrictions,” said chief executive Willie Walsh. More ominously, he added: “Given the ongoing uncertainty on the potential impact and duration of Covid-19, it is not possible to give accurate profit guidance for 2020 at this stage.”

“Until a few weeks ago, markets had been expecting positive profit growth from most companies this year,” said Andrew Milligan, head of global strategy at the funds giant Aberdeen Standard Investments. Now they are less sure.

IAG’s shares tumbled by 24% last week and easyJet fell even more, by 27%, after it cancelled flights in and out of Italy, froze pay across the business, offered unpaid leave and halted non-essential training. In the US, Boeing shares were down 16% on the week.

Globetrotters at American bank JP Morgan are facing restrictions on non-essential travel to some destinations, while Nestlé and L’Oréal have suspended business travel until at least mid-March. Amazon has told staff to avoid non-essential travel — including inside the US.

It is not just business travellers being affected. The tour operator Tui suffered the biggest share price fall of the week — 30%. “The markets speculated that consumers would think twice about going abroad on holiday,” said Russ Mould at the investment platform AJ Bell.

Few areas seem untouched. Johnnie Walker maker Diageo has warned of a £200m hit to this year’s profits as duty-free sales drop off in airports and customers in China and Asia stay at home. British American Tobacco said its duty-free sales had also taken a hit.

Supply chains are being thrown into chaos because of the variety and quantity of goods made in China. Big names in the fast-fashion industry — H&M and Zara — have started taking factory space in Turkey to make up for supply stuck in China.

Some mining stocks, often seen as a safe-haven bet during a crisis, have fallen. Even gold — the safest bet of all — declined by more than 3% to $1,586 an ounce on Friday as fear spread.

“The financial markets appear to be pricing in the coronavirus triggering a marked weakening in the global and UK economies,” said Paul Dales at the consultancy Capital Economics.

There is also a debate over whether stock markets were due to draw breath anyway, given their decade of huge gains. Foreign exchange markets, for instance, have been relatively calm amid the turmoil. Silvia Dall’Angelo, senior economist at the US investment manager Federated Hermes, said: “The coronavirus might have just been a catalyst for a correction that was waiting to happen . . . the real economy, in the past few years, has been quite sluggish, while equity markets have been stellar.”

Big investors had been convinced that shares were the place to put their money, given that bonds were offering super-low yields because of the actions of central banks — the Bank of England’s quantitative easing programme alone was worth £435bn. The effect of low interest rates and central bank money gushing into markets has been to push up the prices of gilts and force down yields, sending investors scurrying up the risk curve.

As Hall at Peel Hunt pointed out, there were also other reasons for stocks to have been higher as the year began. The US-China trade war appeared to be cooling, while Boris Johnson’s decisive election victory had removed — at least temporarily — the uncertainty over Brexit.

However, there is a case to be made that equities were overheating. Mould’s view is that the sell-off was “more reflective of how over-exuberant and complacent markets had become, rather than the long-term impact of the virus”.

Investors had been buying into “speculation” and inflated “narratives” rather than fundamentals, Mould added. He quoted Warren Buffett’s warning about the risk of market exuberance, saying: “Be fearful when others are greedy, and greedy when others are fearful.”

Even so, it may not be time to start buying quite yet. All eyes are on the central bankers, whose predecessors saved markets in the post-crisis decade. Jerome Powell, the US Federal Reserve chairman, issued an emergency statement on Friday insisting that the fundamentals of the US economy remained “strong” despite the risk from the coronavirus.

In an apparent attempt to calm the markets, he added: “We will use our tools as appropriate to support the economy.”

The US markets had already been pricing in as many as four interest-rate cuts this year, even before Powell’s statement.

Andrew Bailey, who starts as Bank of England governor in a fortnight, also faces bets that its monetary policy committee (MPC) will cut rates from 0.75%.

Dales at Capital Economics did not rule out a statement before the scheduled MPC meeting on March 26 if the situation were to deteriorate. He said it could outline coordinated central bank action — of the type that took place during the worst of the financial crisis — or even an emergency MPC meeting.

Relying on central banks to keep bailing out markets, though, may not be a long-term solution. “It is a hope in the market that [they] can fix all of this and make it go away — and that’s not the case,” said Melissa Davies, chief economist at the equity research firm Redburn.

She added that “making sure banks aren’t tightening their lending conditions” could be a more effective action for the Bank of England to take.

It was a suggestion echoed by Milligan at Aberdeen Standard Investments. “We don’t want a credit crunch on top of a virus shock,” the fund manager said, adding that trading last week was “vicious” but “relatively orderly”.

Hall insisted that private investors had not been scrambling to take savings out. “We have a very computer-driven equity market nowadays, so these aren’t necessarily human beings making a decision to sell shares because they’ve suddenly got a lot more cautious,” he explained. “It is macro-driven funds taking a view that equities are now riskier than debt . . . This is not mainstream investors panicking.”

The intervention of the Federal Reserve chairman appeared to have helped the S&P 500 scramble off the day’s low by the time Wall Street closed on Friday. It was not enough to take the market into positive territory on the day, and when trading starts in Asia tomorrow, global markets will also have to digest the worst Chinese manufacturing data in history, released after the American markets closed.

More information is due during the week, including crucial US employment data and a meeting of the oil-producing nations of Opec. All that will need to be assimilated.

As Milligan put it: “A week is a long time in markets.”

Source: Jill Treanor and Sabah Meddings of the Times

How much do you need to retire?

A question often asked is ….How much do I need to retire comfortably?

Many people are unsure how much they will need in their pension pots in order to provide for a comfortable retirement. Some believe that they will need the equivalent to their current wage, although between half and two thirds of the final salary is also considered sufficient, as their mortgage will have been paid off and the children will have left home.

The key questions are:

• How much income money will I need in retirement?

• How much money will I need to save in advance to deliver that income?

Which? Money has surveyed more than 6,000 retirees to find out what their spending habits are in order to answer these questions.

How much do people spend in retirement?

Retirees in their survey spent around £2,220 a month per household.

To help figure out how much you need in retirement, they have spoken to thousands of retired Which? members to see where their money is being spent. Households spent a shade under £2,220 a month, or around £27,000 a year, on average when they carried out research in 2019. This covers all the basic areas of expenditure (which had a combined cost of £17,800 per year on average) and some luxuries, such as European holidays, hobbies and eating out. Aiming for this level of income will provide a good platform for your retirement.  You’d need £42,000 a year if you include luxuries such as long-haul trips and a new car every five years. Travelling and holidays are a very important part of retirement for our members, with people spending nearly £4,800 a year on this part of their life. Priorities change slightly as you move through your retirement years. Their members tend to spend relatively less on food and drink, housing payments and recreation as they get older, but more on utility bills, health, and insurance premiums.

Average annual spending for retired single people

The charts below show annual spending for a single person.  They have highlighted three levels of spending – paying for essentials, funding a comfortable retirement, allowing a few extras, and being able to have a more luxurious lifestyle. 

Essential lifestyle

Comfortable lifestyle

Luxurious lifestyle

So a luxurious retirement will involve a £33,000 spend.

A comfortable retirement will cost £20,000.

How much money will you need in your pension pot?

It's important to think about your pension income in building blocks - first with the state pension, then with your private or workplace pension savings, and then with any other additional income you might get, from investments or property. 

State Pension

Once you reach state retirement age, currently 66 for men and women, the government will provide a sizeable chunk of your post-retirement money.  The state pension is currently £258.40 per week for a couple (if you qualify for it before 6 April 2016). This is equivalent to £13,437 a year, bringing a couple halfway towards the £27,000 annual income level (before tax).  The full level of new state pension (for people qualifying for it on or after 6 April 2016) in 2019/20 is £168.60 per week, but not everyone gets that much. You can find out why in our guide to how much state pension will I get? In April 2018, the average for a man who qualified after April 2016 was £151.84 a week (£7,895 a year), while the average for a woman was £143.85 (£7,480) a year. Combined, that's around £15,375 a year. 

Final salary pensions

How much extra income you need to generate from your private pension savings will depend on the type of private pension you have.  Defined benefit and final salary pensions pay you a regular monthly income - how much you get is based on your earnings while you were working.  If you have one or more of these, you should receive annual updates telling you how much you can expect to get. Adding that to your state pension (which you can find out by getting a state pension forecast) will help you understand how much you've got to play with in retirement.

Money purchase pensions

A money purchase, or defined contribution, pension sees you invest your pension contributions into a big pot. When you come to retire, you have to decide how to generate an income from it.  You can take your entire pension pots in one go, but this will mean it’s entirely down to you to make the money last and you’ll invariably pay a substantial tax bill. Most people with these pensions will opt for income drawdown or an annuity, or a combination of both when it comes taking money out of their pension.  If this is you, how much will you need in your pension pot to have enough in retirement? They have crunched the numbers.

If you were looking to get a comfortable post-tax income of £27,000 a year and wanted to get a guaranteed income paid to you via a joint-life annuity, you'd need a pot of £298,000, according to their calculations. This also factors in the state pension.  To get the same amount from income drawdown, which sees you keeping your money invested in your pension and withdrawing a regular income, you’d need £215,450. This assumes your savings grow by 3% annually. Producing post-tax annual income of £42,000, including the state pension. (For a married couple this would mean an initial pot of around £695,000 to buy a joint-life annuity or £502,775 invested in income drawdown.)

How much do I need to save into a pension at different ages?

If you wait until you are 40 to begin saving for the future, you'll need to contribute £489 per month to achieve a comfortable retirement by the time you reach state pension age. The figure rises to £1,142 per month if you are aiming for a luxurious lifestyle. The projections contain some quite scary numbers, although saving a few hundred pounds per month from your mid-20s is obviously more palatable than having to find much more if you leave your retirement saving until later in life.

Your monthly income should rise as you move through the decades and if you are in a company pension scheme, your employer will be contributing some towards your target amount. Under the rules of pension auto-enrolment auto-enrolment, a minimum of 8% must be paid into your pension, with 5% coming from you and 3% coming from your employer.  Someone earning the UK average salary of £28,000 will be saving £186 per month. The more you can contribute, or find an employer that matches your contribution or more, the closer you'll get to these targets. The reassuring thing is that although you may not be saving at the above levels in your 20s or 30s, you’d have kicked off your retirement saving, and won’t have to start saving from scratch in your 40s and 50s.

Pension tax relief - free government money

When you save into a pension during your working life, the government likes to give you a bonus as a way of rewarding you for saving for your future. This comes in the form of tax relief.

When you earn tax relief on your pension, some of the money that you would have paid in tax on your earnings goes into your pension pot rather than to the government.

Tax relief is paid on your pension contributions at the highest rate of income tax you pay. So:

• Basic-rate taxpayers get 20% pension tax relief

• Higher-rate taxpayers can claim 40% pension tax relief

• Additional-rate taxpayers can claim 45% pension tax relief

Things work slightly differently in Scotland.

Source: Which?

Is drawdown to move from 55 to 57?

Millions of savers could have to wait another TWO YEARS to dip into their pensions under amid controversial Treasury plans to raise age for cashing in to 57

• Chancellor Rishi Sunak under pressure to raise the minimum pension age to 57 

• Mr Sunak is due to deliver his first Budget in just weeks on March 11

• Pensions firms are lobbying the Government to introduce legislation swiftly

• In 2015 the then-Chancellor George Osborne pledged to raise age to 57 by 2028

Millions of savers could be forced to wait another two years to dip into their pensions under controversial plans drawn up by the Treasury.

Chancellor Rishi Sunak has come under pressure ahead of next month’s Budget to raise the minimum pension age from 55 to 57 amid fears many households have been cashing in their retirement funds too quickly.

Sweeping pension reforms were introduced in April 2015, allowing savers more freedom over what to do with their own money.

But at same time George Osborne, then chancellor, made a little-noticed pledge to raise the threshold from 55 to 57 by 2028.

This was designed to ensure there is a ten-year gap between the age at which savers can draw their private pension and the state pension age, which is set to rise to 66 for both men and women this October, and to 67 by 2028 and 68 by 2039.

The pledge, contained in a Treasury document in July 2014 and signed off by Mr Osborne, has been shelved by successive ministers.

But the Treasury has told the Daily Mail it intends to press ahead with the reform.

With Mr Sunak due to deliver his first Budget on March 11, the biggest pensions firms are lobbying the Government to introduce legislation as swiftly as possible.

The Association of British Insurers warned earlier this week that more than 350,000 savers cashed in their entire pension pot last year, and claimed many are in danger of falling into ‘poverty’ in retirement.

But last night experts warned an increase in the pension age will come as nasty shock to many savers including carers and those in ill health, who had banked on accessing their savings at 55.

Baroness Altmann, who was pensions minister when the reforms were introduced, said: ‘The whole point of having a private pension is to allow people to retire if they need to.

‘We need to maintain the principle of trusting people with their money and giving them freedom and choice.’

Carla Morris, financial planner at Brewin Dolphin, said: ‘This will come as a surprise to many. If the new tax rules come into effect, people could have to get extra jobs or work longer than expected to replace the income they thought they would get at 55. It is important for everyone to be aware.’ 

Mr Osborne’s 2015 overhaul gave savers more flexibility over what to do with their pension pots, including the ability to cash them in at the age of 55.

It proved hugely popular, with savers withdrawing almost £33billion since they were introduced. Previously people could only draw a quarter of their funds as tax free cash at that age.

Earlier this week the ABI warned that many were withdrawing their retirement funds at an ‘unsustainable rate’ with one million cashing in their entire pot.

It said: ‘The earlier that someone can access their pension, the greater the risk of exhausting their pot, especially as the state pension age is increasing.’

But industry experts have said the warnings are overblown. They have pointed out that most savers have several pensions, while official figures show 90 per cent of funds that are completely cashed in are smaller pots worth less than £30,000.

HM Revenue & Customs figures show that the average withdrawal from a pension had fallen to £6,820 at the end of last year, down from £11,940 in 2015.

A Treasury spokesman said: ‘The announcement of the minimum pension age rise to age 57 in 2014 set out the timetable for this change, and we will announce next steps in due course.’

By JAMES SALMON ASSOCIATE CITY EDITOR FOR THE DAILY MAIL

The final retirement countdown

Time to review your financial plans with a financial check-up?

If you are aiming to retire within the next five years, it’s time to get into the mindset of considering the practicalities of fulfilling your desired lifestyle and making plans. While you should think about retirement planning as early as possible, the five years leading up to retirement are critical.

Retirement may be looming with terrifying urgency, and the reality is that you have just 60 pay packets left until you retire. This is a time when you’ll need to obtain up-to-date pension forecasts and obtain professional financial advice to make sure your retirement plans are on track. So if you believe you are five years or less away from retirement, now is the time to seriously review your financial plans with a financial check-up.

What are the key things to concentrate on?

The first step is to ask yourself if you are actually ready to retire. There are many factors to consider. Your financial affairs are the big factor to begin with. Your ability to afford retirement depends on your lifestyle, your family situation and home ownership. If you have dependent children, or have 15 years left on your mortgage, the time might not be quite right. You have to ensure retirement is the right move for you. Work can be stressful, but it can be rewarding and give you a sense of achievement. People may miss the routine of working life and the day-to-day interaction with people.

Taking a different path

What you need might not be retirement, it could be change. A chance to get out from behind your desk to do something meaningful. Perhaps retirement is your ticket to achieving this – taking a different path where money is no longer the prime motivation. If you are afraid about having time on your hands after retirement, explore options for filling it well before you take the leap.

Major change in lifestyle

Retirement means a major change in lifestyle. You need a clear mind as to what you want your life to look like and how to spend your time. Then you can work on arranging your finances to suit. Decide on your priorities for retired life. Do you want to travel, or split your time between home and somewhere hot and exotic? Is there a particular hobby you want to immerse yourself in? What kind of leisure and social activities matter to you?

Later years in your retirement

Try not to get caught up in what happens right after you end work – also consider the later years in your retirement. Will long-term travel continue to be feasible as you get older? Will you need such a large house, or will it become a burden? And what about in the latter stages of life? Would you need to fund care? You must also have a clear picture of what kind of life you would like to lead in retirement and what it will cost. Then you can start to dig a little deeper into what you might be able to afford. This means getting to grips with your sources of income once your earnings stop.

Request up-to-date forecasts

Your first port of call is your pension – or pensions. Contact previous pension trustees to request up to-date forecasts. If you’ve lost details of a pension scheme and need help, the Pension Tracing Service (0800 731 0193) may be able to assist you.

You should also find out what your likely State Pension entitlement would be – you can do this by completing a BR19 form or by visiting www.direct.gov.uk.

Consolidate existing pensions

If you have personal pensions, you need to find out where they are invested and how they have performed. Also check if there are any valuable guarantees built into the contracts. It may make sense to consolidate existing pensions, making it easier for you to keep track of everything and reduce the amount of correspondence you receive. With investments in general, it is important to review your strategy before you take the leap into retirement. You don’t need to suddenly become an ultra-conservative investor – you still want your portfolio to grow over the next few decades. Should the investment markets make a correction, you may want to limit your downside. Don’t forget, there may be another 30 years ahead.

Don’t put off confronting the truth

If your investments don’t look on course to give you the income you’d hoped for in retirement, don’t put off confronting the truth. You may need to revise your projected living costs. Alternatively, there’s still time to change your investments, and you could also cut back on spending while you are still earning to generate more savings. Your income can be used in other ways besides topping up your savings as you prepare for retirement. Clearing debts, including your mortgage, should be a priority before you retire. Whatever you owe on credit cards and loans, focus on paying off the debt that charges the most interest first. Debt will be the biggest burden once you do not have a regular working income.

Consider re-adjusting your finances

Having no mortgage to pay is a major step towards re-adjusting your finances for a post salary life. You might also decide you want to sell up, whether to downsize, to give you a lump sum of cash to live off, or to fund your dreams of moving abroad. Either way, use your working income while you can to improve your home, maximising potential revenue when you come to sell it. Finally, retirement is a huge change, both personally and financially – so big it might be too much to take in all at once. It makes good sense to practice at being retired before it becomes a reality, especially if you will have to make certain adjustments and sacrifices to compensate for a reduced income. You might even consider a phased retirement, cutting back on your hours gradually. This will not only soften the financial effect, but it will also get you used to having more spare time to fill.

Taking The Right Steps Today To Ensure You Have The Retirement You Want Tomorrow?

Retiring is a huge life event and can sometimes leave us feeling as though we’ve lost our identity. After decades of working and saving, you can finally see retirement on the horizon. But now isn’t the time to coast. If you plan to retire within the next five years, we can ensure you take the right steps today to help ensure that you have what you need to enjoy a comfortable retirement lifestyle.

The impact of the gender divide

The impact of the gender divide

On average, women who have entered pension income drawdown since the pension freedoms have retirement pots worth £118,000 – 34 per cent less than the average man’s £179,000 pot, according to research by Censuswide, published by AJ Bell on March 7.

The study – a survey of 554 respondents over 55 that have entered drawdown since April 2015, conducted between February 8 to 14 this year – found the differing income levels naturally translate into a divide over retirement expectations.

Some 62 per cent of female respondents were concerned about running out of money in retirement compared to 53 per cent of men.

Indeed, Ms Morrissey points out that research by Mercer suggests the gender pension gap is around 40 per cent, roughly double the gender pay gap.

She says: “There are many reasons for this – women tend to be paid less than men, they are also likely to work part-time and take career breaks to look after children.”

Couples should have open and honest conversations about their shared aims for retirement and how well they’re saving together.

Source—Catherine Stewart, Scottish Widows

Ms Stewart notes the 14th annual ‘Women and Retirement Report’ published by Scottish Widows in 2018 showed 54 percent of women were saving adequately for retirement, compared to 56 per cent of men. 

She says: “For younger women, the fear of financial hardship is clearly discouraging many from saving into pensions, leaving those most financially vulnerable at an even greater disadvantage.”

Playing catch-up

Ms Lord says the key is making sure women are saving and reviewing their finances on a regular basis.

She says: “It is essential to include saving as part of the monthly budget and make sure funds are set aside for the future.”

But to really close the gap, women must prioritise their pensions early in their career, and get maximum benefit from employer contributions, tax relief and investment performance, suggests Ms Morrissey.

She adds: “They should also make sure they plug any gaps in state provision by ensuring they continue to receive National Insurance credits when they are at home caring for children.”

Ms Stewart also suggests “tracking down any older pensions they may have and consolidating them may be an option,” as well as “paying a little extra before, during or after taking extended leave, can go some way to mitigating the impact to retirement savings”.

She adds: “Couples should have open and honest conversations about their shared aims for retirement and how well they’re saving together.

“In addition, seeking legal advice is crucial to understand the legalities of what happens to pension pots during divorce proceedings and what pension offsetting is.”

Source - Victoria Ticha is a features writer for Financial Adviser and FTAdviser

Published 01/04/2019

8 Million think they will never retire

PEOPLE SAVING ADEQUATELY REACHES RECORD HIGH – YET 8 MILLION THINK THEY’LL NEVER RETIRE 

The number of people saving enough for a comfortable retirement has hit its highest ever level, with almost three in five Brits (59%) now saving adequately for the future*. This is a significant improvement from the 55% proportion recorded 12 months ago, suggesting April’s auto enrolment step-up had an immediate positive impact on saving habits. It’s not all good news, however. The 15th annual Scottish Widows Retirement Report shows that the proportion of people not saving at all for later life remains static at 17%. Meanwhile, more than a fifth of UK adults (22%) – equating to almost eight million people – expect they’ll never be able to afford to retire. Who are the never-retirers? Those who think they’ll never be able to retire are more likely to have no pension savings at all (35% of this group, versus 26% national average), with over half (51%) expecting to rely solely on the State Pension in later life. 

In fact, never-retirers are those who are already financially vulnerable. They have an average income of £21,500 a year – significantly below the UK average salary of £27,396 – and are much more likely to have faced a financial emergency in the past, from an unexpected bill to a sudden drop in income (86% of this group, versus 67% national average). They are understandably anxious about making ends meet: 85% of ‘never-retirers’ are concerned about running out of money in retirement, compared to 53% of the wider population, and almost three in five (63%) are worried they will have to work when they are no longer fit and healthy. 

The young feel the benefit of auto-enrolment, but still aren’t saving enough The number of under-30s not saving for retirement has fallen dramatically thanks to auto enrolment: almost half a million under-30s started saving for the first time in the last two years, with four in 10 (40%) 22-29-year-olds now saving adequately. This is a significant uplift from the 30% recorded in 2017. This still, however, leaves three in five young people saving below the recommended level for a comfortable retirement, with 14% of 22-29-year-olds not saving anything. 15 years of progress Scottish Widows’ research highlights progress over the last 15 years. The proportion of people who are not in a defined benefit scheme and saving something for retirement has risen from an average of just 43% in 2007, to 55% today. 

The biggest gains have been among younger people, with an 18% rise in 22 to 29-year-olds saying that they save for later life. Peter Glancy, Head of Policy at Scottish Widows, said: “One in five people say they’ll never be able to retire. With no further step-ups in auto-enrolment contributions planned, this is a timely reminder that bold action must be taken to ensure no-one has to face the spectre of poverty in their later years. “While the past 15 years have proved that things have been changed for the better, auto-enrolment alone won’t avert a pension crisis in the UK. 

Government and industry need to take the next step together and stop pretending the long term savings challenge can be solved in isolation.” 

Source: Scottish Widows

More "Daves" than women running pension funds

More funds have a manager called David or Dave at the helm than a woman, research has shown.

According to figures from Morningstar, 108 UK-listed open-ended funds are run by managers named Dave or David — the equivalent of 7.2 per cent of the 1,496 funds in the market.

Meanwhile just 105 funds are run by female fund managers, also accounting for 7 per cent of all open-ended funds.

Other common names included Paul, with 87 funds having a man called Paul in charge, James (65 funds) and Nick (62 funds).

The most common female name among fund managers was Kate, at 12 funds, while Johanna and Katie both had 10.

NAME	FUND MANAGER	MANAGED FUNDS	NAME	FUND MANAGER	MANAGED FUNDS
David	64	108	Kate	6	12
James	46	65	Johanna	5	10
Paul	48	65	Helen	3	4
Richard	43	53	Claudia	3	4
Andrew	40	49	Joanna	3	3
Mark	38	58	Lauren	2	2
Nick	35	58	Kate	1	10
Matt	29	53	Sophie	1	1
Dan	28	33
Alex	25	49
Tom	20	28
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How much do I need in my pension pot to retire at 55?

How much pension pot do I need to retire at 55?

You'd need at least an estimated £650,000 pension pot to retire at the age of 55. But as well as a good pension pot, you also need a good retirement plan. Here's how you might set about creating both.

There’s an old joke: ‘Jumping from a plane is easy; the hard part is hitting the ground.’ Similarly, choosing to stop work is something you can do at any age; what’s difficult is supporting yourself afterwards. 

Anyone with a pension pot can access it however they wish from the age of 55. However, ‘can’ does not mean ‘should’. It’s usually good practice to preserve your pension pot for as long as possible before cashing in any of it, since this will be your main income in retirement. For most people, therefore, retirement will usually come in their mid-60s.

But suppose you did want early retirement at 55? How much would you need to save, and how achievable is it? Here are some of the things you would need to think about - with the help of a financial adviser.

Planning for retirement at 55: start with what you know

Although you can’t predict the future, there are some things you can estimate now with reasonable certainty. Start by asking yourself the following questions:

How much retirement income will I need?

A popular way to estimate this figure is the ’70 percent rule’, which states you will need 70 percent of your working income to maintain the lifestyle you want in retirement. So if you retire on a salary of £50,000 you would be looking at achieving an income of around £35,000. For some people 70 per cent may be generous and they would be comfortable living on less. Conversely, others may struggle.

How might my income needs change over time?

This is another key point to consider. Early in your retirement you may want to spend more, enjoying your freedom, travelling and treating yourself. Later on you may settle down and begin to spend less – but later still there may be a need for expensive long-term care. These changing requirements may influence how you decide to take your pension.

Will I have other sources of income during retirement?

Your pension may not be your only source of funds. Other assets may include:

• savings

• investments

• properties (e.g. to let)

• spare rooms in your home to rent to lodgers

• working part-time

• freelancing

• running your own business from home

Work out which of these may apply to you, and factor them in to your overall annual income.

Can I work part-time in retirement?

You can work as much as you like after starting to take your pension - even full-time, if you wish. Legally there is no such thing as 'retirement age', and no employer can force you to retire unless it can be proven you are no longer capable of doing the work.

What you do have to bear in mind is your income tax. Pensioners are subject to the same income tax rules as everyone else, so if your income is above the personal allowance you will pay tax on it. Earning a salary may therefore eat into your pension income, thus removing some of the benefits of being a wage-earner.

How much will my state pension be?

You should also eventually begin to receive the state pension, assuming you qualify for it. State pension age is currently 65 for most people and is expected to be 68 by 2044. Currently the maximum state pension pays around £8,767 per year, so you can factor this into your long-term plan (i.e. you may not need to take as much from your private pension once you start to receive the state pension).

You'll only receive the maximum state pension if you've paid 35 or more years worth of National Insurance contributions. The good news is that the state pension is triple-locked at present, which means it will always at least keep pace with inflation (unless a future government changes this).

Which of my costs are fixed?

Think about which of your regular expenses are essential and unlikely to reduce much in later life. Remember that things like food bills, utility bills and running a car will rise with inflation. You may also have to pay more for things like dental care in later life, or home modifications if you become less mobile. Conversely, other regular costs (such as mortgage repayments) may reduce or disappear. Calculate your fixed costs when deciding how much income you'll need.

Now think about what you don’t know

Certainty is impossible in retirement planning, but you can identify the blind spots in your knowledge and plan around them. Your plan will need to account for the following unknowns:

Pensions and inflation: how much will prices rise?

What will inflation do to the real value of your pension pot? In some ways this is one of the ‘known’ factors, as inflation of some sort is virtually inevitable. In the past 25 years, purchasing power has almost halved – meaning that £1 in 2018 can buy only as much as 50 pence could in 1993. Retiring at 55 might easily result in a retirement of 25 years, or considerably longer, so you’d need to factor in how much your spending power would reduce in that time (and also, of course, between now and the day you retire).

Some investments, such as inflation-linked bonds, are specifically designed to protect against inflation, but consult a financial adviser before exploring any of these.

Will I prefer an annuity or drawdown?

An annuity is a guaranteed income for life. The amount is usually fixed, though you can have one that rises to help beat inflation. The advantage is that it can never run out, no matter how long you live. The disadvantages are that your annual income may not be very much, you may have to live a long time to get full value from it, and you can't vary your income. You also can't leave an annuity to someone else (unless it's set up to cover your spouse too).

A drawdown scheme is very different. Your pension pot remains invested in the stock market, and you draw on it as needed. The advantages are that you can take varying amounts, and if there is money left when you die, you can leave it to your dependants. The disadvantages are that the pension pot depends on stock market performance, so can lose value steeply at times - and running out of money is a real risk.

What will annuity rates be when I retire?

You may decide to buy an annuity (a guaranteed income for life) either when you retire or at some later date. Annuity rates are poor at present, but may change in future. You may also be able to get an enhanced (more generous) annuity if your health deteriorates later on.

How long will I live?

These days, living to the age of 90 and over is not uncommon. If you retire at 55, that would mean a 35 year retirement. Would your pension pot be enough to sustain you over that time? Also the inflation issue (see above) becomes even more pressing – prices in 2018 are triple those in 1983.

How will the stock market perform?

If you keep your pension pot invested and make regular withdrawals (i.e. you have a drawdown scheme), it remains exposed to risk on the stock market, and its value can go up and down. Over time the market generally increases in value, but there are inevitably periods of loss, and sometimes big crashes. Withdrawing money during one of these dips can erode your pot’s value much more quickly.

The power of compound interest

Another big unknown factor is how the investments in your pension fund will perform during the saving-up period ('accumulation'). We've assumed a steady rate of 4 per cent in the calculations below, but it may be higher or lower. You can help your pension along by ensuring it is invested in the best pension fund for you - most workplace pensions start off in the default fund, which may not be ideal.