MoneyTalk (November 2003)
by Arch Financial Planning Limited
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A recent survey has concluded what financial planners have for a long time suspected. The survey concluded that an increasing proportion of the population is relying almost solely on the value of the family home to give them a good level of income once they retire and stop receiving salary cheques. This presupposes that residential property will only ever continue to increase in value, which we know to be untrue, even from fairly recent history. It also assumes that people will be willing to leave the area in which they live, together with all their friends, and move to a lower cost area like Corby (sorry if you live there!) to release equity from their current home. It is one thing to want to move when you retire but it is quite another if you are forced to by financial constraints.
To add to our concern at the results of this survey, the Government is expected to publish, before Christmas, its plans for the future shape of company and personal pensions with effect from April 2005. The main ingredient in this radical overhaul is expected to be a maximum lifetime pension fund limit for each of us of £1.4m. To achieve this it is expected that we will be able to get tax relief on pension contributions of up to 100% of our annual income, rather than the very much lower limits under current legislation. It is estimated that only 5,000 people will initially be caught by this limit. However, the sheer size of this fund limit should be a loud wake-up call to the rest of the population, most of whom will end up with pension funds totalling barely 6% of this figure, or even less.
The message that the survey, and the expected Government changes, herald's is clear. Whether you are in your early 20s, or approaching retirement, or somewhere in between, you should be aware of the need to take serious, and immediate, action for the time when your salary cheques will stop. We have devoted a section of our website to this important issue and if you look at the list of topics which follows, we hope that you will find one or more that is particularly relevant to your situation.
Please let us know if you would like to discuss your planning for when those salary cheques stop. If you already have an Arch adviser then please contact him or her, otherwise telephone our Help Desk FREEfone 0800 975 4526 or email direct@arch-fp.co.uk.
Relying on State Pension Benefits?
If you are going to rely on State pension benefits you should be very clear as to what they are. To help you with this we have sections of our website on State Pensions and State Pension Credit.
You might also like to consider the following statement by Jeff Rooker, Minister of State at the Department of Social Security which he made on 29 November 1999 'Anyone who retires solely on the Basic State Retirement Pension and makes no other provision will, as has always been the case, retire in abject poverty.'
If you have the opportunity to join your employer's occupational pension scheme you should grasp it with both hands, no matter how young you may be. If you don't you could be effectively throwing away additional income of 3% to 10% of your salary in most cases. If your employer's pension scheme is of the 'final salary' variety you could be throwing away much more than that.
If you do not have such an opportunity then you should turn to one of the new Stakeholder Pension Plans. To help you with this we have sections of our website on Stakeholder Pensions Explained and Stakeholder Pensions - Our Preferred Provider.
Relying on Your Husband's Pension?
Whilst women are generally acknowledged to be better financial planners than men there does still seem to be a blind spot for many women when it comes to their own pension provision. Particularly because women are now living much longer active lives and still outliving men of the same age by around five years, the task of providing a comfortable lifestyle for themselves after the salary cheques have stopped coming in, is of fairly major proportions.
To help you with this we have a section of our website on Pension Planning for Women.
Contributing to Various Pension Plans?
If you are doing your best to build up pension benefits by various methods you might be concerned when you receive you annual pension fund statements this year. That is because new Government rules on how these are presented will, at a stroke, halve the amount of projected pension that you might have been expecting based on your previous pensions statements.
To help you with this we have a section of our website on Why Did My Pension Shrink?
Need to Build Up Larger Pension Benefits?
Perhaps you are well aware of the need to build up a larger pension but you are not quite sure how to go about it and whether making pension contributions is the right way anyway.
You should have a look at the section of our website on Stakeholder Pensions Explained and in addition, whether you are a man or a woman you should look at the section headed Do You Have to Contributue to A Pension? under Pension Planning for Women.
Prefer Ethical or Environmentally Friendly Investments?
Ethical, green and environmental investment funds now tend to be referred to under the generic name of ‘socially responsible’ funds. You may not be aware that you can also use such funds to build up your pension. If this is of interest to you have a look at the section of our website on Socially Responsible Investing.
One of the reasons that we recommnend or preferred Stakeholder provider is the availability of a range of 7 socially responsible pension funds, see Stakeholder Pensions - Our Preferred Provider.
Would it surprise you to know that two thirds of people who have taken the trouble to build up a private pension fund throw away part of the guaranteed income that it can produce for the rest of their lives when they retire? This is because they do not use the Open Market Option to seek out the very best annuity rates and accept the pension that is offered to them by their current pensions office.
There are other issues to consider at this crucial time of planning for the future. To help you with this we have sections of our website on Pension Options at Retirement and Open Market Option Explained.
Arch
Financial Planning Limited
formerly trading as Arthur Childs Financial Services
Head
Office & Registered Office: Caswall House, 6 Wharf Street, Godalming,
Surrey GU7 1NN
Tel: 01483 527278, Fax: 01483 527279
Administration
Office: Arch House, Collins Court, 39 High Street, Cranleigh, Surrey
GU6 8AS
Tel: 01483 204600, Fax: 01483 204611
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