Budget 2014: Thinking about retiring? Where to get advice.

One of the key areas that the Chancellor announced was the Government’s wish that everybody should get impartial advice when retiring.  As someone who has now long worked in and argued for a professional, independent financial planning sector, this was music to my ears.  However, there is now a huge gap in who is going to provide this advice, how it’s going to be provided and what is going to be provided.  Where should prospective retirees get advice now?

I have to declare a bias. I am the managing director of the country’s largest independent fee based financial planners.  I will obviously be saying that clients should seek the advice from a fee based adviser.  As a professional, clients should seek the help of highly qualified individuals who will for a defined and clear fee give them advice as to what to do next and help them through the next steps.  Obviously, professional advice provided by people who have spent many years studying for qualifications and gaining experience does cost money.  Whilst many clients are only too happy to pay for the value of the advice and peace of mind that they get, we need to be clear that in certain circumstances the cost of independent advice becomes marginal or even detrimental where clients have less money.  What can these people do?  To an extent the sources of advice now have become limited. 

The Government has launched and heavily marketed the Money Advice Service.  The MAS is to an extent a misnomer.  Legally you can’t provide advice in the UK on financial planning without being regulated by the Financial Conduct Authority.  The website gives useful information and but is essentially an information portal.  It tells you what you could do as opposed to what you should do.

Many of the high street banks have now stopped providing financial advice, and when they do they will normally be restricted.  This means that they can only provide advice in certain areas and for them this will be limited to the products that the bank provides.  As most banks do not provide pension provision or advice heading here may mean that the retirees get some cheap advice but expect it to be limited.  Individuals working in any regulated business have to comply with FCA’s 11 principles of business conduct, which includes dealing with clients with integrity and due skill and care.  Whilst many individuals in the banking world do and have always adhered to these principles it is stating the obvious that up to now the culture in many banks has led to mis-selling and a general lack of trust that these institutions are now having to address.

There are some online services but nothing that at the moment has got any traction and this is still very much in its infancy. 

Finally, the insurance companies may well provide you with generic advice but this again will either be limited or information.

As you can see there are only a limited number of places that retirees can go to.  The advice gap does exist and so it will be interesting to see how the Government intends to bridge this gap to provide advice to retirees in 2015.

Matthew Phillips

Managing Director

Telephone: +44 (0)20 7893 3456

Email: getintouch[@]broadstoneltd.co.uk

Financial Planning: create a plan for your future life

Benjamin Franklin once said ‘If you fail to plan, you plan to fail’.

Index-Linked Annuity, enhanced annuity, drawdown, phased drawdown, third way annuity, spouses pension?...just a snapshot of the long list of options to decide when it comes to making one of life’s most important financial decisions.

At BROADSTONE, we believe that the solution to enjoying a long and financially secure retirement lies in the planning – tell us what you want in retirement and we will help you plan to achieve it.

Saving for retirement does not have to mean saving into a pension only. Once you have decided the lifestyle you want to have in retirement, we can help you establish what assets are available to incorporate into your plan. It might be an expected inheritance, rental income, an ISA portfolio or proceeds from the sale of a business that will provide the income stream to fund the longest holiday you are likely to have embarked on. 

Should your plan identify a ‘funding gap’ we will recommend the most appropriate solution to ensure this gap is bridged by the time you take that holiday. If an alternative to a pension is the most appropriate solution, we will tell you so and why.

A Financial Planner should do as their title suggests – plan.

Decide to engage with BROADSTONE and your Financial Planner will create your plan and review it on a regular basis, taking into account relevant changes in your circumstances as and when they happen.

Retirement just got a whole lot simpler with a financial plan - we call it life planning.

Peter Nutini

Consultant

Telephone: +44 (0)20 7893 3456

Email: getintouch[@]broadstoneltd.co.uk

Budget 2014: Getting Advice

It seems likely the retirement advice market will evolve into a two stage process.

Retirees will first need to learn about their options and the implications of those options. This will be the ‘guaranteed guidance’ much heralded by the Government. There are hundreds of thousands of people retiring each year and the Government wants each to have a face to face meeting so it is unclear how this will be delivered. But it will be free and impartial so prospective retirees should first take advantage of this offer when it is available. This should allow retirees to understand and perhaps come to a conclusion on the best option for them.

If their chosen option is more than hiking all the money out of their pension as soon as they can they may well need further advice on how to set up the Drawdown or which annuity to buy, what investments to hold and other such matters. This more specific advice is likely to be still carried by the qualified IFA community at a cost to the retiree. There is a danger that the first phase will encourage some to go it alone and no doubt some will make expensive mistakes.

It will be interesting to see how the FCA reconciles their current view of drawdown as a ‘high risk product’ with any new advice process.

Simon Nicol

Pension Director

Telephone: +44 (0)20 7893 3456

Email: contactus[@]broadstoneltd.co.uk

What will you do with your pension pot?

From 2015, individuals will be broadly be able to do what they like with their pension pot. Some commentators have suggested that, having saved all our money for retirement, we will get to a point where the sight of this money and its availability will go to our heads and we will all be booking one way trips to Vegas and heading for the Ferrari garage.

This is, of course, utter nonsense - the majority of human adults seem to have evolved an ability to take care of themselves over the millennia.

This is not to ignore the fact that certain individuals will fritter away what they have managed to save. They could become reliant on the state, for example being entitled to the state pension and other benefits, as they would be now. However, the reality is that most people get up in the morning, try hard at their job and do their best to take care of themselves and their families. That's not suddenly going to change.

There are though other disadvantages around the changes to pensions. They could well make annuities more expensive as their take up will be reduced.  In my opinion, this is a necessary cost to give people the confidence to invest more for the longer term, knowing that their retirement savings have now become a lot simpler and a great deal more flexible.

Matthew Phillips

Managing Director

Telephone: +44 (0)20 7893 3456

Email: getintouch [@] broadstoneltd.co.uk

Are auto enrolment contributions alone enough for retirement?

Following on from Rob’s last post on why we’re all being automatically enrolled, I thought it would be a good time to tackle whether these auto enrolment contributions alone are going to be enough for retirement?

In short, it’s unlikely.

Now the contributions are being phased in. Using the default earnings basis the contributions will start at 1% for the employee and a minimum 1% for the employer, from October 2017 this will rise to 3% for the employee and a minimum 2% for the employer, and finally from October 2018 it will be a 5% employee contribution with a minimum of 3% from the employer. So from October 2018 it will stabilise at a total of the equivalent of 8% of your salary being paid into your pension.

But what does that mean in terms of what you receive when you retire?

Well to put it into context, Scottish Widows 2013 UK Pensions Report says that “the average British worker anticipates stopping work around age 66 and is looking for retirement income of £25,000 a year. That would require savings of £1,000 a month from age 30.”

On an equivalent salary of £25,000 a year now, that would be a contribution of 48%. For many receiving only the minimum employer contribution of 3% at 2018, that means they will need to find a contribution of 45% from their own salary!

To be fair, many people are looking to live on around half their salary at retirement, but that still means on a salary of £50,000, you would need to contribute 21% of your salary from 30, receiving 3% from the employer.

Now you may not want to retire by 66, or need an annual pension of £25,000, you may need more, you may need less. The message is that you should take this as an opportunity to think where you’d like to be at retirement, and whether or not the auto enrolment contributions alone will ensure you have the kind of retirement you can look forward to.

Charles Goodman

Consultant

Telephone: +44 (0)20 7893 3972

Email:  contactus[@]broadstoneltd.co.uk

Will your tax diversification be in the right shape when you retire?

No, this isn’t another Blog about pensions - this Blog is about tax risk.

Over the last 35 years Income Tax has fallen from a breath-taking 98% (1978/79) to 45% and Capital Gains Tax has bounced from 30% up to 40% and down to 28%.

As a result, tax risk is a serious consideration in your retirement planning strategy especially when you need to retain as much of your net wealth as possible.

In managing tax risk, diversification across the various tax regimes is as important as diversification across the various investment sectors and asset classes.

With ISA Millionaires becoming more prevalent those who took full advantage of their annual allowances are laughing all the way to the bank. Likewise, those with investment strategies that take full advantage of the annual capital gains tax allowance are rubbing their hands with glee.

Tax exemption, Tax deferment and Tax relief are a starting point in all financial planning scenarios.

Transferring assets to your spouse/partner or assigning investments to beneficiaries can reduce, or defer, the ultimate tax point further; whilst sheltering your capital from inheritance tax (without giving it away) not only reduces your inheritance tax risk but allows your family to retain 100% of your tax-sheltered assets.

If you have ‘planned for life’ without ‘life-planning’ what gaps might you have in your tax risk?

At BROADSTONE we specialise in Life Planning – why not give us a call.


Helen Wilson
Consultant

Telephone:  +44 (0)20 7893 3456
Email:  getintouch [@] broadstoneltd.co.uk