Pension Release News from Grove
by Michael Ormond on March 25, 2010
Possible best uses for taking pension tax free cash
In most cases, when people retire, they take the maximum tax free cash sum possible from their pensions.
The “at retirement” market is not the same as Pension Release, which applies to those individuals who are taking benefits earlier than their normal retirement age.
Usually, people taking the maximum tax free cash sum when they retire is the right thing to do, however, there are pitfalls. Here are just a few of the reasons those retiring might use tax free cash.
Create an emergency fund
Having cash savings that you can easily access is an extremely important part of financial planning, even more so when you’ve actually retired. Investing in cash may only provide modest returns but it is low risk and flexible – ideal for an emergency fund.
If you are lucky enough to have quite a lot of savings, having a significant amount of your portfolio invested in cash is not unusual. Look around to get the best rates and even consider having some cash instant access is say a building society deposit account and some tied up for longer periods in order to take advantage of higher interest rates – maybe an account where you have to give three or six months notice to withdraw your money.
Repay debt
Unfortunately these days more and more people are retiring with debts, which is obviously not ideal. Getting rid of these debts is quite likely to be one of the best investments you can make.
The reason for this is simple; if you could only earn say 4% interest on your savings but your debts are being charged an interest rate of 8%, it makes financial sense to clear the debts first as they are costing more than you could make from your savings. If you have several different types of debts but are unable to release enough tax free cash to clear all of them, make sure you pay off the ones charging the highest interest rate first, most likely these would be the short term ones such as credit cards.
Boost your spouse’s pension
Even if your spouse is a non-earner or doesn’t pay tax, you could pay £2,880 into a personal pension and receive tax relief, bringing the total contribution up to £3,600.
Having income paid to both spouses is tax efficient because it makes the best use of both your personal tax allowances before income tax is paid.
When taking tax free cash is not advisable
There are some instances when taking pension tax free cash is not a good idea.
1. If you have a Defined Benefit pension scheme you usually have the option to take a tax free cash sum, which in turn will reduce the amount of pension income you receive. You must check what rate is being used and see exactly how much pension is being given up. If you already have other savings and you’re in good health, it could be worth sticking with the maximum income.
2. If your pension fund has a Guaranteed Annuity Rate, it could be set much higher than you would otherwise expect in the current market. If this is the case it may be worth applying the entire pension fund in order to maximise retirement income.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on February 3, 2010
The EHRC (Equality and Human Rights Commission), has declared that it is time for the government to scrap the default retirement age. They also stated that the government should extend the right to request flexible working to all employees, and consider introducing incentives for flexible employers, especially those over 50.
There is no fixed retirement age for people in the UK, but the law allows firms to force staff to finish work at 65. The government is already taking steps in order to change this rule, which will benefit thousands of workers that wish to keep active past 65, whether because they like their jobs, or simply because they cannot afford to stop working.
While there are other short-term options to access cash such as pension release, keeping on working past the retirement age, is a much more effective solution in the long run, and will also contribute towards a bigger pension when retirement takes place.
Indeed, according to a survey, around 60% said they wanted to continue working but on a part-time basis, while 40% said they would like to stay in their current jobs but with greater flexibility in hours worked.
In case this change takes place, the economy would be the most benefited from it. A research carried by the National Institute of Economic and Social Research suggests that extending working lives by 18 months would earn Britain £15bn.
Those working past State Pension age can choose whether or not to claim their State Pension at the same time as they are working. Also they don’t pay National Insurance, and if they work past 65, the Government takes less from their pay packet in tax.
Regarding this matter, the Commission’s deputy chair, Baroness Margaret Prosser, said: “It is time to move away from systems put in place when people died not long after reaching state pension age.
“Britain has experienced a skills exodus during the recession, and as the economy recovers we face a very real threat of not having enough workers – a problem that is further exacerbated by the skills lost by many older workers being forced to retire at 65,”
“Keeping older Britons healthy and in the workforce also benefits the economy more broadly by decreasing welfare costs and increasing the spending power of older Britons.
“Our research shows that to provide real opportunity to older workers, abolishing the default retirement age needs to be accompanied by a concerted drive by government, employers and agencies to meet the health, caring and work needs of the over-50s to enable them to remain in the workplace. Greater flexibility can help to deliver this.” she said.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on
The campaign, launched by The Daily Telegraph, calls for a suspension of tax paid by pensioners on savings and dividends to help them through the crisis, and it is backed by a coalition of MPs and charities.
This tax break proposal, urges the Government to take measures to stop the over-65s from being crippled by taxes on the savings and share investments they have built up to see them through retirement.
The dramatic fall in savings income has come at a time when basic needs such as food, water or heating have become more expensive. This has hit elderly people especially hard, because most of their income is spent on these basic costs.
Gordon Lishman, Director General of Age Concern, said: “Many older people who rely on the interest from limited savings to top up their income are being hard hit by the double whammy of interest rate cuts and higher basic food and energy bills.
“This could have a big impact on the ability of those living on modest means to make ends meet.”
What many feel is that people should not be taxed repeatedly. They are taxed when they work, taxed when they save and then taxed again on the savings.”
While there are other options to access extra money such as pension release, remortgaging, or asking for a loan, the fact is that a tax cut on savings income and a tax cut on dividends would make an enormous difference for all those approaching the retirement age and those that have retired already.
The Government itself calculates that more than around 9 million pensioners rely on some form of investment income to supplement their basic state pension with an average income of £51 a week – a sum that elderly people use to boost their basic state pension of just £90.70 a week.
“This is now an urgent problem. There has been this rush to get interest rates down and people are now talking about zero per cent, but that is going to cripple millions of people that have saved.
“We need to remember that saving is vitally important to the economy. We could be heading for the nightmare situation where the interest rate cuts don’t get us out of recession but not helping savers makes the problems even worse.” campaigning Labour MP Frank Field declared.
John Redwood, the former Tory Cabinet minister, added: “This campaign is needed and deserves to succeed. To get out of the mess of over borrowing we need more savers.
“The interest rate cut will, in due course, help the borrowers but hit savers hard. It is high time the Government balanced it up.”
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on December 23, 2009
Do you know how much you are entitled to when you retire? If you want to know how much you could be in line to receive when you retire, then look no further. Here is your quick guide to a ‘State Pension Forecast’.
What does your state pension forecast include?
- An estimate of your Basic State Pension
- An estimate of your State Second Pension (formerly known as the State Earnings-Related Pension Scheme – SERPS)
What will your state pension forecast tell you?
- The number of years you have been paying National Insurance
- An estimated value of your State Pension, based on your National Insurance record
- An estimate of the State Pension you are likely to receive at State Pension Retirement Age, based on what you have paid and future payments
- How much you could increase your State Pension by if you put off claiming for it
- How you can improve your Basic State Pension
- What effect a company pension or personal scheme will have on your State Second Pension
- Whether you can use National Insurance Contribution made by a late or former spouse or civil partner.
How can I get my State Pension forecast?
You must live in the UK, be four months from receiving your State Pension and not be widowed in order to get your forecast online. You can of course apply over the phone too or via post. Again, you must ensure that you live in the UK and are at least 30 days from State Pension age. In the case of applying over the phone or by post, if you are within the 30 days, your application will not be able to be processed.
What information do I need to supply?
As with sensitive information pertaining to finances, there are some details that you will need to supply in order to obtain your State Pension forecast.
Make sure that you have the following information to hand:
- Your National Insurance number – this is often on your payslip
- What type of National Insurance Contribution you are paying i.e.: are you employed or self employed
- Details of any marriages, civil partnerships or annulments
- Information on any periods you have spent working abroad
- Your current salary figure
If you want to find out more about your State Pension then contact Directgov: http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/StatePensionforecast/DG_10014008. You may discover that your state pension does not live up to your hopes and is not going to support you.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on December 22, 2009
UK pensions are the lowest of any G7 country. In terms of average national earnings UK pensions are worth a mere 31% .
The UK is right at the bottom of the pension earnings list compared to Italy where pensions are worth 68%, 51.2% in France, 41.2% in the United States, 39.9% in Germany and 34.4% in Japan. In terms of this state pension ratio benchmark Canadian pensioners are best off.
In spite of this grim status quo and a continuous trend away from occupational pension schemes, 64% of UK residents still intend to rely solely on their state pension in retirement.
Today’s youth does not show any major concern over pensions, retirement is still a lifetime away. With the demise of the once much envied UK company pension funds, saving for retirement is all too often quite simply forgotten about, but with the current ‘state’ of pensions everyone should be thinking about what they are going to do when they can no longer work..
The number of active members in occupational schemes has crashed from almost 11 million in 1991 to just under 9 million in 2007.
Another worrying trend amongst today’s youth is the belief that equity will provide support in the future. 18% of 25 to 34 year-olds believe they will be supported by equity in the future; an idea that seems almost absurd in the current housing market. Lending criteria is becoming tighter, mortgages are becoming less and less available and then there is the ever-present threat of falling house prices for those who already own homes.
Ultimately, the housing ladder is becoming harder to climb by the day and only 7% of 18 to 24 year-olds believe they will have any equity to provide support in the future.
With the almost epidemic spread of the ‘buy now, pay later’ philosophy nearly 2% of the population are left with outstanding debt other than a mortgage to pay off in retirement.
Furthermore, from 2024 the retirement age will increase to 66 and from 2024 it will go up to 68. Life expectancy is also on the rise, meaning that the number of years spent in retirement will also increase.
In the 1950’s, for example, the average life expectancy of a male after retirement was a mere ten years but by 2016 this is expected to increase to 19 years.
While the outlook is predicting a grim future for UK pensioners, it is believed by many that the introduction of personal accounts planned for 2012 may offer some relief to the situation, however, there is great uncertainty regarding the scheme’s implementation.
Individuals relying on state pension alone may benefit from making good any years in which they did not pay contributions. The pension an individual is assigned, is calculated based on the number of years national insurance contributions have been made.
180,000 women are due to reach state pension age next year and one in nine of these women could still ensure a full state pension if acting now. Thousands more could top up their entitlement by paying top-ups.
The Department for Working Pensions (DWP) urges ‘soon to become’ pensioners to request a state pension forecast and take immediate action . Forecasts can be requested by filling in form BR19 from the DWP website. Forecasts will reveal pension accrued to date as well as the possibility to fund possible shortfalls.
Full national state pension is £95.25 a week. Women need to have paid national insurance for 39 years to achieve this. This will be reduced to 30 years in April 2010. However, even with the planned reduction in qualifying years, women are still expected to fall short.
Up to six years of National Insurance contributions can be bought back at £626.60 per year and individuals with considerable life expectancy may benefit greatly. Individuals anticipating to qualify for pension credit, however, should tread cautiously as these top-ups may affect the amount they are entitled to.
With state pensions facing a cold winter for the foreseeable future and company schemes thin on the ground, anyone without a pension should be seriously considering their options. Bricks and mortar is not as ‘safe as houses’ anymore and so releasing your pension early could help you to really make the most of your retirement fund.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on December 20, 2009
MP Jenny Willot struggled to walk a mile in a UK pensioner’s shoes as part of a challenge proposed by AXA Insurance’s pension awareness campaign.
The 35 year-old Cardiff Central MP tried last week to live on the basic UK pension of £95.25 a week, a bid which saw her turn her heating down, sacrifice her much loved Starbucks coffee, avoid magazines and develop a new found appreciation for the challenges faced by UK state pensioners.
The Liberal Democrat MP shared her experience on Twitter where she expressed her frustration with eating the third same meal in three days; baked potato, cottage cheese and coleslaw, and a newfound “obsession” with food became evident.
Ms Willot explained that the experience had heavily reinforced her conviction that the country’s pension system needed a through revamp.
She found that while it was possible to survive from day today, buying Christmas presents or having your car break down were challenges she didn’t know how to overcome with the lack of “slack” offered by the meagre state pension.
Moreover, the experience helped the MP realise how big a sacrifice having a pet companion is for pensioners as her own cat “completely scuppered” her budget for the week.
The MP concludes that state pensions need to be improved and means testing for pensions should be abandoned to encourage people to save more and rely less on their state pensions.
The challenge undertaken by the MP is part of the AXA pension awareness campaign. She was one of 14 who took part and it certainly opened her eyes to the way that state pensions are letting down the UK’s retirement community.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on December 16, 2009
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on December 14, 2009
Labour is in trouble again after telling pensioners in the pre-budget report that state pensions would rise by 2.5% only for it to emerge that this will not apply to all aspects of the state pension.
The pre-budget report was pretty grim and the one area of the report that wasn’t, was the pensions pledge.
We have now discovered that Alistair Darling was using ’smoke and mirror’ tactics to get the public onside, during a time when pensions are suffering at the hands of the Labour Government.
The 2.5% rise will not count towards extras such as the State Earnings Related Pension (SERPS) which often make up a third of an individual’s state pension earnings and a quarter of married couple’s.
The exceptions to the 2.5% rule will save the Government £350 million a year but could cost people around £40 a year.
Those working in the pensions industry are shocked that only a small proportion of state pensions will be affected and that for the majority the 2.5% increase is hardly going to be felt.
Alistair Darling did not make these exemptions clear in his speech, which to many seems underhand. With so many of the UK’s pensioners already struggling and living in poverty, this is undoubtedly only going to exacerbate financial issues.
The pension’s spokesman for the Liberal Democrats, Steve Webb, has accused Mr Darling of attempting to cheat retired people out of income. He also said that the ‘reforms’ to the pensions that 2.5% increase would have encouraged now lie in disarray.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on
Alistair Darling has announced an increase to state pensions by 2.5% or 4% in real terms, because of the negative inflation rate.
A single persons state pension will then go up to £97.65 and a couple can expect to receive £156.15 a week. Those who are on low income will see a change in pension credits and can expect to receive up to £132.60 a week or £202.40 for a couple in income.
The state pension increase comes at a time when state pension buying power has been steadily falling for a number of years.
These changes won’t take effect until April 2010, just before the general election. It has been speculated that Labour are targeting those on low income who are typically Labour voters. Every Government uses the budget report to sway voters, but with Gordon Brown still stuck in the throats of many, it may all be too little too late for Labour.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on December 10, 2009
According to the Pension Protection Fund (PPF) final salary pension scheme deficits within the private sector are improving.
According to the recent research released last month, the shortfall of all pension schemes in the UK was improving due to an increase in equity markets.
Of the combined deficit of nearly 7,400 final salary schemes, the deficit fell from £97.6 billion to £92.5 billion. The total schemes registered as not being in a deficit has risen from £37.5 billion to £40.4 billion, showing that the deficit is beginning to shift.
The issue with pension deficits was registered in 2008 as £124 billion. Of all pension schemes 21% are in surplus, which does mean that 79% are still in a deficit and highlights the need to turn the problem around.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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