Pension Release News from Grove
by Michael Ormond on September 30, 2008
The third in our example case study series involves Dorothy and her husband who needed to raise as much capital as possible to move abroad and start a new life together.
They already had their contacts abroad looking into suitable rental accommodation and were already investigating work opportunities themselves. As the couple wanted to move abroad first, and then look for work, they calculated that they would need about £1,200 a month to cover living expenses.
At the time, Dorothy had three paid up personal pensions which she wanted to consider releasing a cash lump sum from. As Dorothy saw it, unlocking her pension funds could help them achieve their objectives and move abroad as they wanted.
Having transferred the three separate pensions into one pension arrangement, going through with pension release process subsequently unlocked a cash sum of £5,078. This proved enough for Dorothy and her husband to use to move abroad and cover all living expenses for a few months while they both looked for work.
It was a high risk strategy from Dorothy’s point of view because if they didn’t secure work within 4 months then they will have run out of money. However, it was a risk she and her husband was prepared to take. Had her circumstances been a little different it may not have been suitable for her to carry on with pension release.
At Grove Financial Planning Limited each case is looked at individually to make sure the right advice is given to each person on a case by case basis.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on
Continuing our example case study series, we will look at an example of how funds acquired through pension release can be used to clear existing debts and plan for those unforeseeable emergencies that can and do crop up.
When Tom first looked into pension unlocking, he was bankrupt, having had his catering business fail due to circumstances out of his control, and still left with an outstanding loan that hadn’t been covered in the bankruptcy. Between his wife and himself, Tom calculated that the couple’s total debts amounted to £9,400. Their wish was to pay off the debts then acquire more funds to put towards an emergency fund.
Tom initially looked into pension release as he thought that the three personal pension plans were too insignificant to provide a sufficient income in retirement, so he figured he could “cash up” and use the funds to assist in getting the couple’s life back on track. Tom considered the sacrifice of the pension funds to be a small inconvenience compared to the stress that the couple were going through at the time as they were unable to live within their means.
Grove Financial Planning’s advice in this situation was to transfer his three pensions into one plan, and as a result, a total cash amount of £13,365 was released. As income was not required, the remaining balance of the pension fund would be left invested to a later date.
The released funds provided Tom with enough money to clear the £9,400 debts he and his wife had accrued and still have money left over for their planned emergency fund.
Had Tom’s circumstances been a little different pension release may not have been suitable. For example, had he not been a bankrupt he may have been able to restructure his debts into one larger amount over a longer period, this would have achieved reducing the monthly cost of his debts, which in turn meant he could live within his means and therefore not required to unlock his pension. Or had his pensions been company pension schemes the loss of what he would have otherwise got at retirement might have been too much to justify pension unlocking.
This is why it is so important to seek professional advice from a company like Grove Financial Planning Limited: we can make sure your circumstances are looked at individually and any recommendation is suitable for you and your specific situation.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on
Our first case study involves an enquiry from Helen who needed money urgently and was considering Pension Release/Pension Unlocking from her personal pension plan.
She explained that she and her husband needed to raise as much capital as possible for a deposit on a house. They had a £10,000 payout from a bank charges claim but needed to top this up to give them a sufficient amount to put down as a deposit. Pension Release, otherwise known as Pension Unlocking, seemed to offer the solution for them.
For the couple it was extremely important to get back on the mortgage ladder and own their own home after a period of living in rented accommodation. Helen explained that the couple had invested all previous savings in a business which unfortunately failed and due to other circumstances, were not in a position to borrow money for the deposit.
Taking cash from the pension now in the form of Pension Unlocking or Pension Release, although maybe not the ideal solution, was for them the only real alternative to enable them to meet their objective.
Helen and her husband fully understood that by taking benefits from Helen’s pension early the pension income in retirement would almost certainly be reduced. However, the position they found themselves in meant their retirement fund, for the time being, had become very much a secondary concern.
Once they had sorted out the mortgage and purchased a house, they could then focus their attention to the matter of planning for their retirement. At the time, Helen was aged 51 and her husband was only 40, so they still had enough time left between them to accumulate an acceptable retirement fund.
In this instance Pension Unlocking or Pension Release was appropriate for their circumstances. Obviously, had the circumstances been different – had they been older and had less time to rebuild their retirement funds, or had the amount needed led to too large reduction in pension income for example – then this solution would not have been for them.
At Grove Financial Planning, we look at each case on an individual basis and offer the most appropriate advice for each situation.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on September 20, 2008
Recent news has revealed that approximately £20 billion has been wiped off the UK’s defined benefit pension schemes over the past two days.
According to industry sources, two increases in deficits of £7 billion and £13 billion occurred over two subsequent days.
Initially, the blame was put on a 6% fall in the equity markets as traders responded to the demise of the Lehman Brothers bank but that might be simplifying the issue somewhat.
There have been a number of reasons over recent years adding to the problems suffered by company defined benefit pension schemes, not least of which is the massive losses recently suffered on world wide stock markets, but in particular the problems here in the UK.
This will be because a significant part of any investment in a UK defined benefit scheme will be in the UK stock market; however, this is not the only reason our company schemes, once the envy of the world, are looking broke.
Ever since the demise of Robert Maxwell and the subsequent discovery of the problems with the Mirror Group pension scheme, it became clear that the rules surrounding these types of pension needed to change and become a lot “tighter”.
This resulted in significant increases needed in the funding of company defined benefit pensions because they were now required to hold more money to cover the potential liabilities i.e. they had to make sure there was enough money to cover the liabilities of the members of the pension scheme.
In very simplified terms, it used to be the case that all you needed in the way of funds in a defined benefit scheme was enough to pay for those members who were retired, with a little bit more for those who were just about to retire. However, the contributions being paid by the younger members were enough to cover this on a year on year basis.
Now, quite rightly, you have to make sure there are sufficient funds invested to allow for an ageing membership of the scheme, with greater and greater numbers receiving pensions and proportionally less people paying into it. You have to allow for people transferring away from the scheme and a number of other complicated factors that require basically more money to be held by the pension fund.
This all came at a time when the recent chancellor Gordon Brown, wiped off several billion pounds a year from our pension funds in new tax charges, to line the coffers of the Treasury – very bad timing indeed!
With all these changes there has also come far greater responsibility, and indeed liability, for the trustees of these schemes to make sure everything runs as it should and the members of the pension fund are looked after appropriately.
This is why so many of our defined benefit pension schemes need to look again at what they have and decide how best to move forward – they must do this for the benefit of their members but also because THEY now have personal liabilities towards the work they carry out, and this is also a collective responsibility. It is no longer possible to say another member of the trustee team has responsibility for say investment strategy and it therefore “wasn’t my fault”, you all have responsibility together so be careful!
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on September 18, 2008
It seems that Nick Clegg, the Liberal Democrat leader, has greatly under-estimated the level of the basic state pension.
Whilst the errors recently made by Nick Clegg seem incredible, unfortunately no one these days would be surprised at this level of ineptitude from a politician.
Mr Clegg, the leader of the Liberal Democrats, when asked in an interview for ITV West-Country how much the state pension was he said “I think it’s about £30 quid now, isn’t it?”
The questioner Wally Cotgrave, a retired blacksmith from Devon said he was “unimpressed”. The answer should have been £90.70 a week for a single person and £145.45 for a couple, with more if you claim tax credits.
What I find a bit rich are the comments then made by Mike O’Brien, the New Labour Pensions Minister, who accused Mr Clegg of “living in a remote world – an ivory tower”.
Mr O’Brien would seem to be saying that Mr Clegg didn’t know what he was talking about and by association was inferring that he didn’t take the subject seriously enough or indeed think it was important enough to know something as simple as the amount of basic state pension people are entitled to.
What I think Mr O’Brien is trying to say is that his party is the one that takes pensioners situations seriously and Mr Clegg’s isn’t.
After all, we are an ageing population and it should be getting more and more important that our politicians start to take notice of this; pensioners are voters too!
With this in mind I would like to point out that up to the beginning of this year, New labour have had no less than 13 parings of ministers to look after the serious business of pensions, since they got into power in 1997.
It started in May 1997 with the paring of Harriet Harman and Frank Field. It changed again in July 1998, January 1999, July 1999, May 2001, May 2002, June 2003, September 2004, May 2005, November 2005, May 2006, June 2007 and a change in January this year to the paring of Mike O’Brien and James Purnell.
Here are two people who are pushing through a new regime of Personal Accounts, where the affect of means tested benefits could mean that if you save £1 into one of these accounts, you could very easily get less than £1 back.
So I am of the opinion that although it is a disgrace that the leader of the liberal party doesn’t know what he’s taking about, it does not seem New Labour are taking this issue seriously either.
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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by Michael Ormond on September 13, 2008
Research carried out recently by Scottish Widows shows that a significant number of retirees use pension lump sum payments to clear debts.
An estimated quarter of all retired people are using part of their pension lump sum to repay debt and a further 17% admitting they are using their pension lump sums that they receive when they stop working to pay off their mortgage.
Ian Naismith, head of their market development team said “it’s a shame that some people need to spend their hard earned savings on paying off a mortgage or clearing debts. Retirement should be about enjoying life”.
Whilst his comments are true it seems to miss the point that if this is the process needed in order to clear debts, it will help someone to actually retire and enjoy their life if they do use their lump sum to clear debts.
A pension is a form of saving for old age but we now live within a world that is not as cut and dried as it was. We no longer aspire to working full time up to a specific date and then the next day being fully retired. More and more people will continue working, maybe on a part time basis, and look to stagger their retirement.
We are a society that has recently been built on debt; you leave full time education with debts and sadly, go into retirement with debt too. Because of this we have to start looking at pension arrangements in a different way. Maybe rather than feel sad or discourage the use of pensions to clear debts, we need to start thinking about them in a more flexible way.
If we started to think in a more progressive and flexible manner we might be more encouraged to save into a pension. We currently have the option to access money from our pension schemes from age 50, although sadly this is going to increase to age 55 in 2010. If we look at our pensions in a sensible way and use them more creatively, then maybe releasing some funds in stages can be a very useful option in some circumstances. It seems crazy to me that we are moving away from this flexibility by increasing the age you can do it. Do the government think we are not capable or mature enough to make our own decisions, or if we get professional help they are all going to stitch us up?
I’m not saying that we should all start looking at releasing some of the money in our pensions early but what I am saying is that we need to change our opinion about how pensions work and their purpose.
If we can start to look at them in a more flexible way, being creative and giving options about how and when we start to access them rather than being completely rigid and singled minded, then we may be able to start changing the culture of saving and encourage more and more younger people to start saving towards retirement.
Who wants to even think about saving long term for a fixed date a lifetime away, however, if you could think about a tax efficient savings plan that gave you flexible access from before you retire, maybe, just maybe, we could stop the rot and bad pres pensions get; and the first thing we need to do is change the attitude of the institutions such as Scottish Widows and bring their marketing into the modern world.
Just talking about saving enough “to make their retirement dreams and aspirations come true” is not going to encourage anyone – do they have an image of a woman in an apron next to an AGA? Please save me from this!
Michael Ormond is a Financial Advisor specialising in Pension Release services.
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