Are you at risk of outliving your pension?

Are you at risk of outliving your pension?

We spend much of our working lives contributing to a pension to create an income that affords a comfortable retirement with a few luxuries. But a survey suggests that many saving into a pension are worried about running out.

A poll conducted by FT Adviser asked financial advisers what their clients planning for retirement two decades away were most concerned about. Some 72% said living longer than pension savings would last came out top. Two other responses also highlighted worries about finances during retirement:

  • 10% said clients had concerns about having enough to fund social care if it were needed
  • 8% responded that their clients’ biggest fear was having enough to spend on luxuries when they retired, indicating some are worried about the quality of life they’ll be able to afford in retirement
Why is outliving a pension a growing concern?

Whilst living longer than your pension will last has been a concern in the past, it’s one that’s affecting more people now. Of course, planning retirement is personal but there are four key reasons why it’s a growing trend:

1. Longevity: Life expectancy has risen significantly in recent generations and that means pensions need to last even longer. In the past, a pension had to last perhaps 20 years. Today, it’s not uncommon for retirees to live 30 or even 40 years after they give up work. Longer lives are clearly positive, but it does present more challenges when it comes to managing retirement finances.

2. Potential care: Coupled with rising longevity is the fact that more of us will now need some form of social care. The majority of those requiring care, whether home care services or residential care, will need to pay for at least a portion of their own care costs. The cost of care can be significant and should be factored into retirement plans, but knowing what should be set aside is difficult.

3. Flexible pensions: Prior to 2015, most people either had a Defined Benefit pension or purchased an Annuity, providing them with a guaranteed income for life. However, Pension Freedoms mean this has changed. More people are choosing to access pensions flexibly, changing the amount they withdraw to suit them. This does have benefits, but also means individuals now need to take more responsibility for how they use a pension.

4. Uncertainty: The above three points all contribute to a feeling of uncertainty. It means that some saving for retirement now may be unsure if they’re on the right track and the lifestyle their efforts will sustainably afford them once they reach retirement. Understanding how much you need to save to achieve the retirement you’re looking forward to is important for easing concerns.

Alternatives to your pension

With so many people worried about outliving their pension, it’s important to look at what other assets you can use should this happen. It’s a step that can give you greater confidence and lead to a financial plan that includes arrangements should something unexpected happen, providing you with a financial safety net.

  • State Pension: First, over your years working, you’ve probably built up some State Pension entitlement. At the moment, you need 35 qualifying years to receive the full State Pension of £168.60 per week (£8,767.20 annually). If you have fewer qualifying years, you’ll receive a portion of the full State Pension. You can check how much State Pension you can expect to receive here.
  • Property: For many retirees, property is one of the largest assets they own. However, it’s often overlooked as part of retirement planning. You may want to leave your home as an inheritance to family, but, if needed, it can be used to provide an income in retirement. Products that release equity locked in property aren’t suitable for everyone, but may be worth considering if pension savings are dwindling.
  • Investments and savings: Over your life, you may have also built up savings and an investment portfolio, which can be used effectively to provide an income during retirement. At times, people can be reluctant to use these after a lifelong habit of saving. However, it can offer you security and comfort.
Entering retirement with financial confidence

To fully enjoy retirement, confidence in your financial position is important. This is where financial planning can add value. Financial planning can help assess how all your assets can be used effectively in retirement and how to use them to ensure sustainability.

It’s a process that can also help you answer those ‘what if’ questions. If you’re worried about how the cost of care would deplete assets or what would happen if you lived five years longer than expected, financial planning can give you an idea of the short, medium and long-term impact. Cashflow planning can, for instance, allow you to see a visual representation of how your wealth may change depending on the decisions you make and factors that are outside of your control.

If you’re planning for retirement and are concerned about outliving your pension, please get in touch. We’ll work with you to understand what your current financial position is and where adjustments can be made to get the most out of your money.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

Ten tips for boosting mental wellbeing

Ten tips for boosting mental wellbeing

When we think about improving health, it’s often the physical that springs to mind, but mental wellbeing is just as important. Luckily, it’s rising up the list of priorities for many people. Whether you’re feeling stressed about a certain area of your life or you want to be able to relax more, these tips can help boost your mental health and cultivate a positive mindset.

1. Make time for the things you enjoy: When you’re stressed, it’s easy to focus on what’s causing you concern and skipping the things you’d normally do. But having a break and some time to think about other things can be exactly what you need. Doing the things you enjoy can remind you of the things you should be grateful for and deliver a positive boost to your mental health.

2. Be sociable: When we’re worried some people have a tendency to shut themselves off from loved ones and avoid social situations. However, connecting with others has plenty of benefits, from improving your self-esteem to offering a support network if you need it. Making plans with family and friends gives you something to look forward to as well.

3. Exercise: Exercising might be the last thing on your mind when you have concerns. Whilst it’s associated with physical health, exercise is just as good for mental wellbeing too. Getting your blood pumping releases feel-good hormones that can improve your mood and focus. It doesn’t have to be a lengthy gym session, a brisk walk can be just as beneficial.

4. Get outdoors: With the British weather, getting outdoors isn’t always attractive. But it’s been linked to improving mental wellbeing. An activity outdoors can help alleviate some of the stress that you may be feeling. Where possible, try heading to a park or calm area to help you get away from it all.

5. Practice mindfulness: Modern life often means our thoughts are distracted and we fail to focus on the present. This is where mindfulness can help. Focussing on what you’re doing now, rather than concerns about something that has happened or may occur, can lead to a better state of mental wellbeing and help you appreciate life more.

6. Understand your triggers: Do you know what leads to you feeling stressed? Understanding what triggers poor mental wellbeing can help you better manage low points. It’s an area that’s personal, keeping a written note of what’s causing you to lose positivity, worry or just generally feel low can help you put together a plan to tackle it.

7. Eat well: Everyone knows food is important for physical health, but ensuring you get a balanced diet is crucial for mental wellbeing. Foods that are packed with vitamins and minerals can help your body run at its best, giving you more energy, improving concentration, and leading to a better mood or outlook overall.

8. Get plenty of sleep: Sleep is really important for mental wellbeing. However, if you’re feeling stressed, it can make drifting off far more difficult, creating a vicious circle. If it’s an issue, giving yourself plenty of time to unwind beforehand can help, others find that exercising in the evening can help them drift off too.

9. Set goals: If you’re stressed about something, in particular, it’s often due to the scale of it. Perhaps a challenge seems too big to overcome or a solution feels impossible. Breaking down the steps you need to tick off into manageable chunks can make you feel far more positive. Being able to track your progress as you work towards a bigger goal can ease worries too.

10. Don’t be afraid to ask for help: We all need a helping hand sometimes, but asking for help when you’re stressed can still be a difficult thing to do. Whether you simply turn to family and friends or seek professional help, it can greatly improve your mental wellbeing. As the saying goes: a problem shared is a problem halved.

Stress and your finances

There are many areas of life that can cause stress, but one of the most common is money. If you have concerns about your finances, you’re not alone. In fact, according to research from Ceridian 42% of UK employees would describe themselves as feeling stressed about money issues on a regular basis.

Financial worry can occur no matter your wealth. Whilst you might be earning a comfortable income, concerns about what would happen if it stopped, whether you’re saving enough for retirement, or how investments will perform are typical. Taking control of your money and building a financial plan that reflects your goals can improve overall wellbeing. If this is an area you’d like support in, please contact us.

What influences your risk profile?

What influences your risk profile?

Risk profile is something we mention a lot when looking at investments and other key financial decisions. But what has an impact on your risk profile?

Investing naturally comes with some level of risk and values will rise and fall over time. However, the amount of volatility experienced varies hugely. Typically, the greater the level of risk and volatility you take on, the higher the potential returns, but there is a greater chance that values will fall. For some, the potential returns of a higher risk profile will outweigh the drawbacks, whilst others will prefer the relative stability of lower risk investments, even if potential returns are reduced.

It’s important to keep in mind that all investments involve some risk. But you also need to look at the long-term picture where volatility is considered. Over the years, stock markets have experienced significant dips, which can be a cause for concern for investors. However, historically, markets have recovered to deliver returns over the long term.

There are five key factors to consider when weighing up your risk profile:

1. Your goals

The first area to think about is what you’re investing for. Having a clear goal in mind, allows you to build an investment portfolio that suits you.

What you’re investing for is likely to have a significant impact on how you feel about risk. Let’s say you’re investing to pay for a child’s education, security may be a priority for you and investments with a relatively low risk may be more attractive because of this. In contrast, if you’re investing to enhance your lifestyle in retirement, but you know you already have the assets to be comfortable, you may decide to increase exposure to volatility.

2. Investment time frame

This one links directly to what your goals are; when do you plan to access your initial investment and the returns it’s hopefully generated?

As a general rule of thumb, you shouldn’t invest if your time frame is less than five years. This gives you an opportunity to ride out dips in the market and recover from potential downturns. In turn, if your time frame is longer, you’re in a better position to take on more risk when you take a long-term view. Investing for retirement is a good example of when a long time frame may mean a higher risk profile is appropriate. When you first start saving for retirement, it’s likely to be a milestone that’s decades away. As a result, short-term volatility should have little impact when you focus on the end goal.

3. Other assets

Financial decisions shouldn’t be made in isolation. They should look at your overall financial plan and the other assets you have. This will influence your risk profile too.

For example, if you hold a significant amount in cash and other low-risk assets, you may decide to take a higher risk with new investments. It’s important to keep in mind here that not all your investments should be the same in terms of risk. Diversifying and holding a range of investment assets, with various risk profiles, can help smooth out market volatility and limit potential losses.

4. Capacity for loss

No one wants to think about losing money when they invest. However, it’s an important consideration to make. If your investments were to perform poorly and decrease in value, how would this impact your lifestyle?

You shouldn’t invest capital that you can’t afford to lose. However, there’s more to it than that. If your investments were to fall, would it devastate your future plans? Or would it simply mean that some small adjustments would need to be made to ensure your lifestyle was sustainable over the long term?

5. Overall attitude to risk

Whilst the above four factors are influential, your overall feelings about risk are too. You should feel comfortable with all the financial decisions you make, including the level of risk taken when investing.

It’s natural to worry about potential losses when investing and if you think you’re being too conservative, taking some time to understand how investment markets operate over the long term can help. On the flip side, an aggressive approach to investing isn’t always appropriate even if you’re comfortable with it. Working with a financial adviser can help you reconcile your feelings on investment risk with your financial position.

Regularly reviewing your risk profile

Remember, your risk profile can change. The level of risk you were willing to take in your early 20s when you likely had fewer responsibilities, is probably very different to the risk profile you had after you were paying a mortgage or had a family. As financial security improves or you approach retirement, the level of risk you’re willing and able to take will change again.

As part of your annual financial review, risk profile should be one of the key considerations that’s discussed. It’s also an area to review following big life events, such as marriage, divorce or starting a family, and when your financial position changes significantly.

If you’d like to discuss your risk profile and how this should be reflected in financial decisions, please get in touch.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Getting to grips with Power of Attorney

Getting to grips with Power of Attorney

Naming a Power of Attorney is often one of those tasks we know we should get around to but inevitably put off. The number of people registering a Power of Attorney has been rising, yet figures suggest millions could still be left in a vulnerable position should something happen to them.

If you’ve yet to name a Power of Attorney, we take a look at the reasons to consider doing so and how to go about it.

Let’s start with the basics: What is a Power of Attorney?

A Power of Attorney is a legal document that names an individual or group of people giving them the power to act on your behalf should you no longer be able to do so, for example, due to illness or injury. They can be used for both short and long-term situations.

  • If you’re injured in an accident, for instance, a Power of Attorney may be able to make decisions on your behalf on a temporary basis. This may cover day-to-day tasks, such as ensuring bills are paid on time.
  • There may be cases where a Power of Attorney makes long-term plans on your behalf. In the case of a dementia sufferer, for example, decisions relating to their living situation may be made.

No one wants to think about becoming incapacitated and being unable to make their own decisions, but it does happen. Taking steps to prepare for such an eventuality just in case can place you in a better position should the unexpected occur.

In October 2007, Lasting Power of Attorney was introduced under the Mental Capacity Act 2005. There are two different types, ideally, you should have both. It’s up to you whether you choose the same or different people for each type.

  • Health and Welfare Power of Attorney: This type will give someone the power to make decisions relating to your welfare, including daily routine, medical care, life-sustaining treatments and moving into a care home.
  • Property and Financial Affairs Power of Attorney: Someone named on this type of Power of Attorney will be able to make decisions such as managing bank accounts, paying bills, collecting your pension or selling property.

If you named a Power of Attorney before 1st October 2007, this will be known as an Enduring Power of Attorney. So long as it was signed before this date it is still valid. It covers decisions relating to property and financial affairs only.

Eight in ten don’t have a Power of Attorney

Research found that across all age groups more than 80% of people had no Power of Attorney in place at all. Worryingly, three quarters don’t see any need for one, suggesting an ‘it won’t happen to me’ mindset is preventing some from taking the important step. Unsurprisingly, there was even less take-up among younger generations. Fewer than 6% of adults under 55 said they’d named a Power of Attorney. Yet, accidents and illness can occur at any age.

Whilst it’s not surprising that Powers of Attorney are used less frequently among those under 55, it’s a mistake that could have serious consequences. Younger generations are far more likely to have additional responsibilities, such as paying a mortgage or raising a family, which could be seriously affected if someone wasn’t able to make decisions on their behalf.

Even if you’re married or in a civil partnership, naming a Power of Attorney is wise. Your partner doesn’t have the automatic right to deal with your bank account, for example, and may even find joint accounts are frozen if you’re unable to make decisions.

How to name a Power of Attorney

Naming a Power of Attorney is relatively simple:

  1. You can access the forms required to name a Power of Attorney by contacting the Office of Public Guardian. You can either print out the necessary documents or fill them out online.
  2. You have two options when filling out the forms; DIY or work with a solicitor. A solicitor will cost money but can help ensure mistakes aren’t made and streamline the process. Which one is best for you will depend on how confident you are about the process and the complexity of your estate.
  3. The forms are then signed by a certificate provider, stating you have the mental capacity to make the decision and haven’t been placed under pressure to do so. A certificate provider can either be someone you know well and for at least two years or a professional such as a doctor, social worker or solicitor.
  4. The completed forms must be registered with the Office of Public Guardian to be valid. It should be registered whilst you still have the mental capacity to do so and the process takes around nine weeks. There is a fee of £82 to register each type of Power of Attorney.

In general, you can’t make changes to a Power of Attorney after it’s been registered, so think carefully about who you name before proceeding. If changes are required, you should contact the Office of Public Guardian for advice.

What happens without a Power of Attorney?

Without a Power of Attorney in place, an individual can still apply to make decisions on your behalf. However, this can be a lengthy and time-consuming process. In addition, it may not be the person you’d prefer. It can make an already difficult time incredibly challenging and potentially leave you in a vulnerable position whilst the process is ongoing.

If someone becomes mentally incapable, but doesn’t have a Power of Attorney, a legal representative, relative or a friend can ask the Court of Protection to make an order appointing them as a deputy. This would essentially give them the same powers as a Power of Attorney, potentially covering both financial and welfare issues.

A Power of Attorney should form part of your wider estate plan that aims to provide you with security and peace of mind about the future. To discuss how it fits with your other decisions, please contact us.

Please note: The Financial Conduct Authority does not regulate estate planning.

What can you do to minimise objections to your will?

What can you do to minimise objections to your will?

When you write a will, you expect your wishes to be upheld, but that’s not always the case. It is possible for those left behind to contest a will if they believe it is invalid or doesn’t make reasonable financial provisions for certain relatives or dependents. As the number of contested wills increases, it’s important to understand why this is and what can be done to minimise the risk of it happening.

In simple terms, a will contest is a formal objection raised against a will. There are several reasons why someone may choose to contest a will, which can broadly be broken down into two categories:

  • The validity of the will: Most will contests focus on the validity of the will and there are reasons why this may be called into question. Among the arguments of contesting a will are lack of valid execution, undue influence, lack of knowledge and approval, and testamentary capacity.
  • Reasonable financial provisions: Certain people can also make a challenge to your will by claiming that it doesn’t make reasonable financial provisions for them. Among the people that can do so are a spouse or civil partner, a child, a former spouse or civil partner, or a person that was maintained by you immediately prior to death. Many factors will be taken into consideration when assessing reasonable financial provisions, including the financial needs of the applicant and the size of your estate.

Figures from HM Courts and Tribunals show that the number of disputes of wills has increased. Analysis conducted by Direct Line indicates that disputes regarding application for probate increased by 6% in 2018. It’s a trend that looks set to continue too. A quarter of Brits, the equivalent of 12 million people, would be prepared to contest a loved one’s will if they were unhappy with it.

Why is the number of will contests rising?

There are many reasons why someone may choose to contest a will. However, the overall trend has been linked to two key factors.

First, property prices have risen enormously over the last couple of decades. As property is often one of the largest assets a person owns, this has led to the value of estates rising significantly. As a result, there’s a greater reason for those left behind to dispute a will they don’t agree with and pay the associated legal fees.

Secondly, a complex family situation can make splitting up an estate far more challenging. Marrying more than once, having children from different relationships and other influences can have an impact on disputes.

Minimising the chances of your will being disputed

With disputes against wills rising, it may be wise to take action to minimise the chances of a dispute occurring in the first place and reduce the likelihood that a dispute would be upheld. Among the steps to consider taking are:

1. Speak to loved ones: Whilst you may not want to discuss the details of your will, it can prevent loved ones from being shocked by your decision. If you think they will be surprised by how your estate is set to be distributed, explaining your decision and reasons behind it can help ensure you’re all on the same page.

2. Make sure your will is properly executed: You have two options when writing a will: DIY or use the services of a solicitor. A solicitor will cost you, but they can offer guidance on ensuring your will is executed properly and reduce the chances of questions around the validity of it being raised. If you choose to go down the DIY route, make sure you fully understand the process and the boxes that need to be ticked.

3. Prove medical competency: A common reason for disputing a will is that the person making it didn’t have the mental capacity to fully understand what they were doing. For instance, if they had been diagnosed with dementia. This can be countered by speaking with your solicitor or doctor about your ability to make decisions and having this in writing.

4. Be aware of undue influence: Another common ground for dispute is that the person faced undue influence when writing the will. This would have to be proved by someone making an application against your will. However, ensuring the solicitor’s notes state you fully understand the decisions you were making and had reasons for doing so can help.

5. Be as precise as possible with the wording: Ensure your will is written as clearly as possible. Ambiguous wording can make it easier for those that want to dispute your will to do so. Have a clear plan in mind about who you want to benefit from your estate and how before proceeding to help with the process.

6. Provide details of exclusions: If you plan to specifically exclude someone from your will who would normally inherit, such as a spouse, civil partner or child, you can provide details as to why. Should they then make a claim against your will, this can give a clearer picture of your decision and why it’s one you reached.

7. Add a letter of wishes: A letter of wishes isn’t legally binding. However, it can be used to state in your own words who you want to benefit from your estate and why. Should a dispute be raised, this can then be used against it. Whilst it may be tempting to write an emotional letter of wishes, it’s best to stick to the facts.

8. Regularly review your will: Over time, your wishes are likely to change as your circumstances do. As a result, so should your will. It’s advisable that you review your will every five years and following big life events, such as getting married, divorce, or as your family grows to ensure it reflects your current situation.

Please note: Estate planning is not regulated by the Financial Conduct Authority.

Divorce and pensions

Divorce and pensions

When a relationship breaks down, splitting up assets is common. From deciding who gets which pieces of furniture right through to property. However, one asset that’s commonly overlooked initially is pensions.

Alongside property, pensions may be the largest asset you have. When you consider how long you’ve been paying into it and the potential employer contributions, tax relief and investment returns, your pension could be worth more than you think if you haven’t been actively monitoring its value. As a result, it, and the pensions of your ex-partner, should form part of divorce negotiations.

The impact a divorce could have on long-term financial plans shouldn’t be underestimated. Research indicates:

  • 45% of women aren’t confident or didn’t know if their personal financial plans would be adequate if their relationship failed
  • Over a third (35%) of men were also in the same position

With this in mind, pensions need to play an important role in divorce proceedings. However, as it’s not tangible and may not be something you’ll have access to for several decades, it can be forgotten about. As longevity increases and individuals increasingly take responsibility for their retirement income, pensions are crucial for long-term financial security.

Establishing how much a pension is worth

As pensions are long-term investments, an initial challenge may be establishing how much they’re worth. It’s a calculation that should include all pensions, from Workplace Pension to additional State Pension that has been earned.

For a Defined Contribution pension, including Workplace Pensions and Personal Pensions, the latest annual statement should provide a transfer value that can be used. If you have a Defined Benefit Pension, also known as a Final Salary pension, the calculations can be more complicated as accrual rates and contributions will need to be considered. We can help you determine the value of your Defined Benefit pension.

As pensions are usually inaccessible until the age of 55, the process of splitting up a pension during a divorce can be more difficult than other assets. However, there are essentially three core options. The same options apply for a dissolution of a civil partnership.

1. Pension sharing

A pension sharing order is a legal way of dividing up a pension between a couple. It was introduced in 2000. Prior to this, a spouse or civil partner that didn’t have a pension or held a smaller pension would have no pension entitlement.

Pension sharing means that pensions are now included in the total value of marital assets and, therefore, should be divided fairly during a divorce. A portion of an existing pension may be awarded to the other person if they have a pension that is lower in value. The money awarded is known as a pension credit. The pension credit can then be transferred into either an existing pension scheme or used to open a new pension. As a pension sharing order allows you to create a separate pension, a couple can make a clean financial break.

Couples need to apply to a court for a pension sharing order as part of their divorce. If you’re awarded pension credit, it’s important to think carefully about where you want to transfer the money to.

2. Pension attachment

A pension attachment/earmarking order still allows one person to access a portion of the pension but works in a different way. Rather than transferring a defined amount into a pension, a pension attachment will be paid when the scheme member starts to draw retirement benefits. The amount or portion is predefined. The court will instruct the scheme administrator or pension provider to make these payments.

In England, Wales and Northern Ireland, the figure can be paid either as a lump sum when the pension is first accessed, known as the pension commencement lump sum, or on an ongoing basis from the pension member’s pension income. In Scotland, it can only be paid from a pension commencement lump sum.

As it means your retirement finances are tied to an ex-partner, a pension attachment order isn’t as commonly used as a pension sharing order.

3. Pension offsetting

Finally, this option means both partners retain their full pension rights. However, where one person has a pension that is higher in value, this is offset through other assets. For example, the partner with a lower pension value may receive a greater portion of cash, investment or property assets that are of a similar value to offset the lost pension benefits.

Planning for the future

A divorce can mean significant upheaval in your life and it’s likely that your priorities and aspirations have changed as a result. Reviewing your financial plan in light of this, is a step that should be taken when you feel ready. It’s a process that can help you understand how your finances may have changed immediately following divorce and the steps that should be taken to ensure you’re on track to achieve goals.

If you’ve experienced divorce and would like help reassessing your financial situation as you plan for the next chapter of your life, please contact us.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.