Half of pensioners plan to work past retirement age

A recent study found half (50%) [1] of those retiring during 2018 are considering working past State Pension age. This is the sixth consecutive year where half of people retiring would be happy to keep working if it meant guaranteeing a higher retirement income.

Cost of day-to-day living concerns
More than a quarter (26%) of those planning to delay their retirement would like to reduce their hours and go part-time with their current employer, one in seven (14%) would like to continue full-time in their current role. An entrepreneurial fifth (19%) would try to earn a living from a hobby or start their own business.
The research shows that many people expect their retirement to last an average of 20 years. Around one in 12 (8%) of those scheduled to retire this year have postponed their plans because they cannot afford to retire. Nearly half (47%) of those who cannot afford to retire put this down to the cost of day-to-day living which means their retirement income won’t be sufficient.

Keeping mind and body active and healthy
The research also found that the decision to put off retirement isn’t always a financial one. Over half (54%) of those surveyed who are already or are considering working past their State Pension age say it is to keep their mind and body active and healthy. Over two fifths (43%) admit they simply enjoy working, while just over a quarter (26%) don’t like the idea of being at home all the time.

The shift to pretirement in recent years shows that many people reaching State Pension age aren’t ready to stop working. Reducing hours, earning money from a hobby or changing jobs are all ways to wind down from working life gradually and for many to avoid boredom and maintain an active mind and body.

Financially well prepared for retirement
However, not everyone has the luxury of choosing their retirement date due to their financial situation not allowing them to give up work and others may be forced to stop working for health reasons. Saving as much as possible as early as possible in their career is the best way for people to ensure they are financially well prepared for a retirement that starts when they wish, or need, it to.

As people are increasingly treating retirement as a gradual process, obtaining professional financial advice can help to make sure that your retirement finances are sufficient to allow you as many options as possible.

Source data:
[1] Research Plus conducted an independent online survey for Prudential between 29 November and 11 December 2017 among 9,896 non-retired UK adults aged 45+, including 1,000 planning to retire in 2018.

PENSIONS ARE A LONG-TERM INVESTMENT.

THE RETIREMENT BENEFITS YOU RECEIVE FROM YOUR PENSION PLAN WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE VALUE OF YOUR PLAN WHEN YOU DECIDE TO TAKE YOUR BENEFITS WHICH ISN’T GUARANTEED, AND CAN GO DOWN AS WELL AS UP.

THE VALUE OF YOUR PLAN COULD FALL BELOW THE AMOUNT(S) PAID IN.

Time to start looking at accessing your pension?

Income drawdown is a way of using your pension pot to provide you with a regular retirement income by reinvesting it in funds specifically designed and managed for this purpose. The income you receive will vary depending on the fund’s performance.

However, worryingly a third of people using income drawdown (32%) to fund their retirement have no investment experience, yet two in five (41%) of these have not received either financial advice or guidance, according to new research[1].

Taking advantage of new pension freedoms
Almost half a million (431,581)[2] people are taking advantage of new pension freedoms to draw down their retirement savings, yet the highest proportion have never actively invested in the stock market. Despite being first-time investors, tens of thousands have not sought regulated financial advice or guidance, even though they have an average drawdown pot of £153,000.

You can normally choose to withdraw up to 25% of your pension pot as a tax-free lump sum. The rest is moved into one or more funds that allow you to take an income at times to suit you.

Some people use it to take a regular income. The income you receive might be adjusted periodically depending on the performance of your investments.

Flexi-access drawdown – introduced from April 2015, where there is no limit on how much income you can choose to take from your drawdown funds.
Capped drawdown – only available before 6 April 2015 and has limits on the income you can take out; if you are already in capped drawdown, there are new rules about tax relief on future pension savings if you exceed your income cap.

Lack of professional financial advice
The study warns that a lack of professional financial advice and guidance could leave retirees at risk of running out of money in retirement. Poor decisions in drawdown can lead to consumers taking on too much risk, missing investment growth or making unsustainably high withdrawals. Women in particular were more likely to be first-time investors, potentially putting them at greater financial risk (41% vs 29%).

Findings highlight a ‘first-time investor gap’ is being driven by a lack of consumer understanding of drawdown, with almost half of novice investors who had not received advice saying they thought drawdown would be simple (47%). A further third (29%) claimed they were confident in their investment decisions, despite having no previous experience of actively investing.

Navigating the complexities of drawdown
The research also reveals that one in ten (10%) UK adults not getting advice rely on search engines to help them navigate the complexities of drawdown, while one in five (20%) look at newspapers and magazines. Pension firms were the leading source of guidance for a third (35%) of consumers. Worryingly, though, 44% of all those in drawdown confessed there is nothing that would prompt them to get professional financial advice or guidance.

Some drawdown providers might offer retirement income products that combine income drawdown with other features that might offer guarantees about income and/or growth.
Income drawdown products are complex. Remember that you don’t have to take income drawdown from your current pension provider. You should shop around. τ

Source data:
[1] Study carried out for Zurich UK based on a YouGov survey of a UK sample of 742 people who have moved into drawdown since the pension freedoms were introduced in April 2015.  The survey was carried out between 14 December 2017 and 24 January 2018.
[2] FCA Data Bulletin (issue 12) shows 345,265 pots moved into income drawdown between October 2015 and October 2017. Assuming the number of people moving into drawdown continued at a similar rate from November 2017 to April 2018, this would equate to a further 86,316 people in drawdown. 345,265 + 86,316 = 431,581

PENSIONS ARE A LONG-TERM INVESTMENT.

THE RETIREMENT BENEFITS YOU RECEIVE FROM YOUR PENSION PLAN WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE VALUE OF YOUR PLAN WHEN YOU DECIDE TO TAKE YOUR BENEFITS, WHICH ISN’T GUARANTEED, AND CAN GO DOWN AS WELL AS UP.

THE VALUE OF YOUR PLAN COULD FALL BELOW THE AMOUNT(S) PAID IN.

Nine in ten Britons are in danger of financial hardship – so what cover do you need?

Britons are woefully under-protected should serious illness strike, according to new research[1]. Despite more than a fifth (21%) of people admitting their household wouldn’t survive financially if they lost their income due to long-term illness, fewer than one in ten (9%) have a critical illness policy. People are, in fact, more likely to insure their mobile phones (12%) than to protect their own health.

Taking out life insurance also appears to be falling down the population’s priority list, with just 27% having a life policy, equivalent to 14 million people. Worryingly, this has dropped by 7 percentage points compared with 2017, a year-on-year decrease of 3.6 million individuals.[2]

Precarious position
This is an especially precarious position for the two fifths (42%) of UK households that are reliant on just one income, and it’s clear that many are in lack of a ‘Plan B’. Despite 43% of people saying they’d rely on their savings if they or their partner were ill and unable to work, a third (35%) admit their savings would last no more than three months if unable to work, and more than half (54%) say they’d last no longer than a year. Three in ten (30%) – or 15.5 million people [3] – say they aren’t saving anything at all.
One in five (19%) say they’d rely on state benefits if they or their partner were unable to work for six months, but at a time when welfare reform is resulting in significant changes to benefits such as child and working tax credits, income-based job seeker’s allowance, income support, housing benefits, and bereavement benefits.

Families unprepared
On top of this, some people are leaving themselves and their families unprepared for other aspects of illness or bereavement. One in five (20%) people aren’t sure who would take care of them if they fell ill, and nearly half (48%) don’t have the protection of a Will, power of attorney, guardianship or trust arrangement in place for their families.
When asked why they haven’t taken out life or critical illness insurance, almost a third (30%) of the UK’s primary breadwinners say they don’t see the need for cover, raising concerns over their financial resilience should the unexpected happen.

UK’s protection gap
The research also reveals that a lack of trust and understanding could be contributing to the UK’s protection gap. On average, people think that just a third (34%) of individual protection claims are paid out by insurance providers each year, based on the misconception that insurers will do anything not to pay. In reality, however, virtually all protection insurance claims (97.8%) were paid in 2017.[4] In addition, almost four-fifths (78%) of people are unaware that cover often comes with practical advice and emotional care, as well as financial support, without having to make a claim.

It’s a worrying truth that people are more likely to insure their mobile phones than their own health. On a societal level, we increasingly think in the short-term, caring more about tangible things in our day-to-day lives. On a more fundamental level, we’re programmed not to think about the worst happening. Together, these are dangerous inclinations, as people aren’t thinking about insuring their health or life until it’s too late.

Source data:
[1] 2017 ONS data shows there are 51,767,000 adults in the UK. 27% of people have a life insurance policy in 2018, amounting to 13,977,090 people. 34% of people had life insurance in 2017, totalling 17,600,780 people.
[2] This amounts for a difference of 3,623,690.
[3] 2017 ONS data shows there are 51,767,000 adults in the UK. 30% of people say they aren’t saving at all – amounting to 15,530,100 people.
[4] Association of British Insurers (ABI) and Group Risk Development (GRiD), April 2018
All figures, unless otherwise stated, are from Opinium Research. The survey was conducted online between 5th and 12th April, 2018, with a sample of 5,022 nationally representative UK adults.

Without planning ahead, the cost can be a huge money sink

While many parents value the standard of education offered by independent schools or universities, the costs can be daunting. However, with careful planning, it may be possible to avoid a huge outstanding student loan or tax burden.

A good education will give your children or grandchildren the best start in life. With more parents choosing to opt out of state schools and educate their children privately, plus some children continuing their education into their early twenties, the costs can carry on for many years.

Financial sacrifice
The overall cost for just one child can end up being about the same as buying an average home in the UK. That’s a massive financial sacrifice for many parents, leading them to wonder if it’s better to pay for their child’s education or save the money to help them onto the property ladder later in life. In any case, without planning ahead, the cost can be a huge money sink or lead to further borrowing. Since 2004, private school fees have increased by 70% – at a much faster rate than inflation and UK salary growth.

Private school fees continue to rise much faster than inflation or average earnings, making it more important than ever for parents considering taking this route to plan ahead.

What to consider

Expect fees to rise – on average around 3.5% a year – Inflation, growth in salaries and increased amount of interest from wealthy families in Asia and Russia wanting to send their children to English boarding schools, mean that private education fees may continue to grow.

Don’t assume the cost will end at fees – School uniforms and regular school trips all add up. There will be extra-curricular activities like art, drama, music, and sport to absorb as well.

Boarding can be more than double the cost of day school – By deciding not to board, annual savings of around £15,000 annually per child can be made. So, consider the location of the school, and consider whether it is feasible to commute every day or weigh up the advantages of relocating close to the chosen school.

Mixing private education with state education – Many parents are now delaying private education until secondary school to reduce the cost to below £100,000.
Planning for and researching the right school is often the exciting element, particularly when Open Days allow tours of delightful schools in bucolic surroundings. The hard work starts when analysing how the long-term annual costs are going to be paid for.

Suggestions on how to manage the costs:

Start planning early – put simply, the financial planning can’t start early enough, even to the extent of allocating money before any children are born. Simply paying school fee costs from current income or capital removes the ability to benefit from the 8th wonder of the world (according to Einstein), which is the magic of compounding returns.

Advance schemes – if you can afford to pay for several years in advance, you may be able to get yourself a good deal from the school. Some schools offer to put that lump sum in low-risk investments – and because of their charitable status, they’ll avoid paying capital gains tax on any returns they make. In exchange for pre-payment, a fee discount will be offered by the school. There are terms and conditions and strings attached, but this is worth investigating.

Bank of grandparents – grandparents may want to consider helping to pay for grandchildren’s school fees or additional extras such as schoolbooks, trips and uniforms. If grandparents do have the capacity to help financially, this could mean that a useful by-product could be a reduction in their own Inheritance Tax liability, along with the joy of the gift.

Discounts and scholarships – although discounts aren’t always publicised and can sometimes be discretionary, it costs nothing to ask. A lot of private schools are willing to provide discounts for enrolling multiple children or even paying fees by monthly direct debit. Always ask about any scholarships or bursaries your child might be eligible for. According to the Independent Schools’ Council, a third of children educated at a private school now receive some sort of help with fees.

Good alternative option
Private education is not a feasible option for every family, and with an excellent selection of state schools on offer, it doesn’t have to be the only good option. There are many other ways to invest in your child’s future. For example, if you invested the money you would have spent on day school fees for a full 14 years on your child’s behalf, you could provide a sum that could be used to potentially fund university, buy them a house, learn a new skill or set up their own business.