When you’re 64…

Given our increasingly ageing population, and just 14% of people prioritising saving for retirement[i], a national pensions crisis seems inevitable. We consider the facts and figures, and provide some top tips to help you on your way to a comfortable retirement.

Burying our heads in the sand

Despite much being done in the last 10 years to increase people’s awareness of the need to take ownership of their retirement and start planning for it, many of us still believe that the State and our employers will pay our way in old age. As Baroness Altmann says in ‘The changing face of retirement‘, “You cannot rely on the State to support you in old age – it is up to you to make your own arrangements and plan carefully to ensure you can enjoy your later years in the comfort that you aspire to.”

If we are to realise our aspirations and attain our desired quality of life in later years, we simply need bigger pension pots than before. Even more importantly, we need to start planning for retirement as early as possible.

Adding up to a brighter future

According to Baroness Altmann, you will need to work out how much you have already saved and how much more you can afford to set aside. Then assess how much you think you will need to maintain your desired lifestyle and how long you realistically might live, and compare the two. It’s an exercise that we at Canaccord Genuity Wealth Management also recommend when discussing retirement planning with our clients.

Part of the answer could come from planning to work for longer. If you factor in some part-time income for a few extra years, you can supplement your savings and pension, helping them go further – and you may even be able to build extra savings too.

These calculations are not straightforward and, of course, you will need to make assumptions about how much you can expect to earn on your savings and investments which a financial planner may be able to help you with.

The Government Actuary’s Department forecasts the Pension Fund could be exhausted by 2035/6[ii]

When should I start planning for retirement?

As long as you have some disposable income – immediately. In the UK we are enjoying longer retirements than ever before, and this is primarily due to people living longer (by the end of the 20th century men lived to an average of 76 and women to 81) and retiring earlier (on average 62). This extended retirement period has to be planned for and funded – and we each have to take personal responsibility for it. The earlier you start, the better.

The population over 75 is expected to double in the next 30 years[iii]

How can I start planning for retirement?

Whether you are in employment or not, a partner or self-employed, you can contribute into a pension. Employers are legally bound to offer workers access to a workplace pension scheme, while anyone self-employed or unemployed who can’t invest in an occupational plan can pay into a personal pension, such as a SIPP (Self Invested Personal Pension) or a stakeholder policy.

Pensions are the most tax-efficient wrappers available to investors, with up to 45% income tax reclaimable on contributions. What’s more, many employers see their defined contribution workplace pension schemes as a valued and affordable benefit, so they offer generous contributions to their employees. If you’re an employee and not currently a member of your company’s pension scheme, ask your HR department for details.

You don’t have to be a high earner to enjoy a comfortable retirement, so long as you start investing young. As the graph below shows, a 25 year old contributing £200 each month (including employer contribution) can generate a healthy pension to supplement their state pension. If they were to contribute £200pcm until the age of 68, rising in line with inflation at 3%, and if that pension generated returns of 5.75% per annum, they’d have a fund of £741,337 on which to retire.

 

 

 

Are there any recent changes to pension rules I need to be aware of?

In 2015, legislation was introduced that provides people with greater control over how they spend, save or invest their pensions. These reforms included enabling people to access their pension from 55, removing the requirement to buy an annuity to generate a guaranteed income until death, and providing access to income drawdown schemes that were previously only available to wealthier pensioners.

Income drawdown enables people to remain invested in retirement while offering them the opportunity to take money from their pension as and when they need it. With annuity rates in freefall since the UK’s vote to leave the EU, it could be argued that income drawdown has never been so attractive to retirees. For example, as of 5 May 2017, a 65 year old could only expect a yield of £5,108 per annum from an annuity of £100,000*.

*On a level-rate, no-guarantee basis.

Alongside the new freedoms, the 2015 legislation introduced a change in the tax treatment of deceased individuals’ pensions. Beneficiaries will now either pay tax at their own income tax level – with the money they receive added to their earnings to calculate this – or, if the person who dies is under 75, there will be no tax to pay. This means that leaving some of your pension to your estate may be a tax-efficient way to plan your legacy.

Our top tips for pension planning:

  1. Start early – average life expectancy in the UK is getting higher, making retirements longer, so we need more money for later life
  2. Take responsibility for your own financial future – final salary pension schemes are far less common than they were so the burden is falling on ourselves and not our employers
  3. Save what you can – a little regular saving now goes a long way in the future
  4. Regularly check that your plans are still on track – if your circumstances change you may need to adjust your retirement options
  5. Seek advice when you need it – financial planning can be complicated, especially further down the line when you may have multiple pension pots or more complex requirements. Free pensions advice is available from the Pensions Advisory Service, or a financial planner can look at your individual situation to ensure all your investments are working in line with your long-term needs.

If you’d like to talk about your future with a Canaccord Genuity Wealth Management specialist in pensions and retirement planning, just call us on +44 20 7523 4738 or email wealthmanager@canaccord.com.

 

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

The tax benefits depend upon the investor’s individual circumstances and clients should discuss their financial arrangements with own tax adviser before investing. The levels and bases of taxation may be subject to change in the future.

 

[1] Survey conducted by YouGov on behalf of Canaccord Genuity Wealth Management. Total sample size was 2011 adults, of which 1,091 were workers aged 18-64 and 265 have £100k+ of investable assets. Fieldwork was undertaken between 10 – 11 Aug 2016. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

[2] Centre for Policy Studies (2014) – NICs: The End Should Be Nigh [online] – [Accessed July 2017]

[3] Age UK (2016) – Later Life in the United Kingdom [online] – [Accessed July 2017]

 

Posted in Investment market, Retirement planning, Wealth planning.
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Marcus Potter

Para Planner

Marcus works closely with the wealth planning team at Canaccord Genuity Wealth Management. He conducts in-depth research into providing bespoke wealth planning and portfolio management for high net worth individuals.