Which Pensions? - Personal pension options

With more and more of the workforce having to be flexible and fewer and fewer young people heading for a job for life or even a career directions for life remind them about personal pension options.

The alternative private pension or personal pension, is offered by a provider such as an insurance company, High Street bank, building society or most typically, a pension company. You do not get any contribution into this from your employer, but it may offer more flexibility over how and where the money is invested.

The success of the investment and the fees charged by the provider will determine how much you get on retirement.

Remind them that at the moment you have to do most of the legwork especially if they are self-employed.

They will have to go and sort this out but you can also inform them that from 2012, the government wants all firms to offer a pension to their workers and they will be enrolled automatically unless staff opt out.

If employers do not offer membership of a pension scheme, they will have to enrole their staff into the new National Employment Savings Trust (Nest) set up by the government. To be enrolled, staff must be aged 22 or above, earn more than £5,715 a year, and have been in the job for at least 13 weeks.

Pensions experts have suggested that contributions into this scheme will still not be enough for today's young people to have a comfortable old age, but the Pensions Minister Steve Webb says it will get youngsters into the habit of saving for retirement.

If like many young people they are not so keen to heed the advice of their parents why not put them in touch with an IFA.  Enable Independent of Bishop's Stortford will happily give advice to any young person wanting to plan for their future.

State Pensions - that doesn't sound like much to live on?

Any self respecting teenager let alone 20 something will be able to figure out that current state pensions do not sound like much to live on.  Pensioners can also get money from the benefits system but this still means money can be tight for many years, even if you have worked for your whole life.

The latest figures from the Office for National Statistics show that 53% of single UK pensioners had an income of less than £10,000 in 2008-9.

So you really need to hammer home that it really does count to start saving early.  Teach them about compound interest because compound interest means if you save regularly from a young age, you will be better off than if you save more later in life.

Most pensions experts say that you should top-up the pension provision from the state with a workplace pension or a private pension.

Explain to them that In a final-salary scheme, the investment risk is taken by the employer and you are guaranteed a retirement income based on pay and length of service.

But generally a pension is a long-term investment. Remember investments, unlike savings, can go down or up in value depending on the success of the investment - such as shares on the stock market.

Explain to them that you will not be able to spend the money you put in now until you retire. However you do not have to pay much tax on this investment.

Let them know that if you join a workplace pension scheme, money comes out of your pay packet and into a pension pot. Your employer also puts money in, and there is tax relief on all this from the government.

You can then tell them that when you retire, the pot of money that you have built up can be used to buy a regular income in retirement, called an annuity.You  are never too young to start saving for a pension, get your children to talk to an IFA about planning and saving for their futures

It's best to talk to your children about pensions...

Parents are twice as likely to talk to their children about the birds and the bees than they are about pensions, according to a government survey.

A lack of awareness about saving for retirement is among the reasons for millions of people not saving enough to pay for the lifestyle their expect when they grow old.  Experts suggest that debt pressures and confusion about pension provision also lead to fewer than 40% of workers aged 22 to 29 putting money away for their old age.

The fist thing to say is that it is better to start saving for a pension as early as possible.

Make sure your children know about the state pension, that it provides for people who have reached the pensionable age. This is the income which the state provides to people who have reached pension age.

At the moment, it is up to £97.65 a week for men aged 65 and above and women aged 60 and above.

But, as we are all living for longer, the pension age is going to change and is likely to reach at least 68 for all men and women just setting out on their working life now.

To get a full state pension tell them that they need to have paid National Insurance contributions - usually deducted from your pay packet - for 30 years. A state pension profiler will explain how much you have built up, and the date when you can claim the state pension.

SOS campaign for better interest rates

It’s shocking news that, “The value of UK savings has been eroded by £50bn in the past year because of inflation and low interest rates”, say the Save Our Savers a campaign group. It is particularly galling if you have worked, saved, paid your taxes, worked, saved and paid your taxes to find that you are bailing out those who didn’t.

Save Our Savers wrote to each member of the Bank of England's rate-setting committee urging them to raise the Bank rate recently to help pensioners and encourage saving. But the Monetary Policy Committee kept the rate on hold at 0.5%, allowing borrowers to continue to benefit from rates remaining at the record low.

In a plea to all nine members of the MPC ahead of the recent decision, Save Our Savers said that "a country without savings is a country without a future", the holding of interest rates at a record low could have a permanent impact. It warned that those on fixed incomes, such as pensioners, were suffering terribly from the combination of extremely low interest rates and above target inflation. "For many this is not a temporary setback. Its effect will permanently reduce the value of their future income," the letter said.

If you are one of the savers who are being hit hard by the record low interest rates IFA’s like Bishop Stortford’s Enable Independent might be able to help you rethink your investments and balance the books in these turbulent times.

Best Mortgage for the moment

Howard Archer, the chief UK economist at IHS Global Insight has said: "The overall marked softening in house prices from their late 2007 peak levels has made housing equity withdrawal less attractive." Clearly many of us feel that way but ironically the number of different mortgage deals has climbed to its highest level for more than two-and-a-half years and the majority of the products are aimed at existing homeowners. 

The price comparison website Moneyfacts has calculated that there are more mortgage deals now available than at any time since November 2008. However, the rise in the number of offers is unlikely to help the housing market as. Some 808 mortgage products require a deposit of at least 25 per cent.

Completely understandably in the same period homeowners have turned their backs on lenders' offers, choosing instead to reduce their mortgage debts. Many homeowners had a "strong desire and perceived need" to reduce mortgage debt "to improve their personal financial balance sheets given high debt levels and serious concerns over the economic situation".

Sadly first-time buyers will still struggle to get a deal. There are only a handful of mortgages available to those with a deposit of less than 10 per cent and they often have other restrictions. However, there is some hope for younger potential borrowers, according to Moneyfact's figures: the number of mortgage deals requiring a 10 per cent deposit has climbed from 176 a year ago to 261 at the start of July.

Enable Independent - IFA’s in Bishop Stortford can help you navigate your mortgage needs in these changing times.

Readers might also be interested in this relevant article:

Getting rid of debts is a good place to start financial planning

Getting rid of debts is a good place to start financial planning

Of course before you can really start to save it is best to pay down any debts. This month The Bank of England reported that homeowners paid £5.8bn off their mortgages in the first quarter of 2011. That followed a record £7.1bn reduction in housing debt in the last three months of 2010.

The Bank of England's housing equity withdrawal figures revealed that householders have now been paying down their average mortgage debt for three years in a row. It means that, since the middle of 2008, homeowners have invested a total of £63.7bn in their properties.

Before the credit crunch the opposite situation was the norm, with persistent housing equity withdrawal between 1997 and the first quarter of 2008. In fact, the record quarterly housing equity withdrawal was the £13.4bn recorded in the first three months of 2007

But the paying down of mortgages is bad news for the high street, David Birne, an insolvency practitioner at HW Fishe. "The reduction of mortgage debt is always a good thing for the individual household but when it happens on such a scale and over such a time period it can have major ramifications for business, as less money makes it on to the high street.

With so much uncertaintly around interest rates and employment it is hardly surprising individuals are protecting their own interest first. If you want to review the best way to reduce your mortgage and save,  IFA’s in Bishop Stortford are here to help.

News on pensions - Link pensions and ISAs

"Previous generations typically spent 10 to 15 years in retirement but current life expectancy for a man at state pension age is 21 years, which means many may live for 30 years or more in retirement."

Another way to encourage longer term saving could be to link ISAs and pensions, suggests Fidelity International, by linking the new £50,000 annual pension limit and the ISA limit of £10,680 to form a single annual tax-advantaged savings limit.

Up to £30,000 per year could be placed in the ISA, and the remainder in the pension. At any point, when an individual feels comfortable not having access to their savings until retirement, they could transfer their ISA savings into the pension, netting tax relief. "Behavioural economics research shows that if you want to get investors to take an interest in long-term savings, you have to make it very, very easy for them," agrees Tom McPhail, head of pensions research at financial adviser Hargreaves Lansdown.

"Every time you introduce a pointless bureaucratic rule it just puts people off. If the Treasury allowed investment assets to be moved between different tax shelters it would help reinvigorate retirement saving at no cost to the taxpayer."

It is getting easier and IFA’s can make it even easier to make sure your savings are working for you for as long as you may need them to.

Which pensions - how do I pay my pension with debts?

Kate Smith, regulatory strategy manager at insurer Aegon UK, believes integrating pensions with other financial responsibilities would make saving for retirement attractive even for those with significant debts.

"Employees could request a pension payment holiday so that their pension contributions (minus tax relief) are diverted to repaying a consolidated loan for example, ideally at a reasonable interest rate, for a maximum period, say five years," she suggests. "Existing savings would remain untouched, the employee could switch back to pension saving after the period, or once the loan is paid off – encouraging staff loyalty, good saving habits and raising awareness of financial responsibility."

Ros Altman further suggests greater flexibility.  Many people are dissuaded from contributing to pensions because the money is tied up for decades with no early access, even in an emergency. With access only available from 55, Altmann recommends allowing people to tap into their pension when they want to, but only their contributions, not their employer's or the tax relief. "In the case of NEST, people would still have half of their pension fund growing until retirement, even if they needed to draw out the other half," she says.

Financial Services Authority regulations that act as a barrier to allowing employers to promote their pension schemes more effectively should be removed, says Smith, at the same time as jargon is eliminated she says. "Information provided to pension savers needs to be simplified; too much information is bewildering and off-putting.  Let one of BishopStortfords IFA’s help you through the jargon.

BEST EVER BARCLAYS FIXED RATES ...

Lowest Ever Fixed Rates Launched

The Woolwich is reducing rates again on a significant number of its fixed and tracker mortgages by up to 0.50 percentage points to enable you to access some of the most competitive deals in the market. At the same time, we are launching two FirstBuy Direct mortgages to support the Governments initiative aimed at helping more first time buyers on to the housing ladder.

These products are being launched on Tuesday, 19 July 2011 and the key changes are:

• Launching our lowest ever 2 year Fixed Rate products.

• A market leading 2 year Fixed rate at 70% LTV, which has been cut by 0.24% to 2.54% and an equivalent version for Loyalty customers at 2.49%.

• Cuts of 0.30% to our 5 year Fixed Rates at 70% LTV which also make them the lowest ever available from Barclays - 3.98% for whole of market and 3.88% for Loyalty customers.

• The majority of the other cuts are on our 80% and 85% products to support customers who have smaller deposits

• The Great Escape, 2 Year Fixed Rate, 85% LTV has been reduced from 4.69% to 4.19%.

• Reducing our 80% LTV, Loyalty, Great Escape and Open Market Lifetime Trackers by 0.19%.

• Launching two new 3 year and 5 year Fixed Rate FirstBuy Direct products for customers who are buying a new-build property through the FirstBuy Direct scheme.

• Increasing the maximum loan size from £1m to £2m on our special 2 year Fixed Rate and Offset products, which also come with our Switch & Save remortgage package.

What are we launching?

Fixed Rates

Remortgage Only.
The Great Escape™
2 Year, 4.19%, £0 fee, 85% LTV, min loan £50k - down by 0.50%.

Remortgage 2 Year Fixed Rates.
(Customers use their own Solicitors and pay all Legal Fees)
2 Year, 4.19%, £0 fee, 85% LTV, min loan £50k, £375 cash back - down by 0.50%.

Loyalty Mortgage.
2 Year, 2.49%, £999 fee, 70% LTV - down by 0.20%.
2 Year, 3.09%, £999 fee, 75% LTV - down by 0.28%.
2 Year, 3.79%, £999 fee, 80% LTV - down by 0.10%.

5 Year, 3.88%, £999 fee, 70% LTV - down by 0.30%.
5 Year, 5.28%, £999 fee, 85% LTV - down by 0.20%.

Core.
Special 2 Year, 2.68%, £1,999 fee, 70% LTV, min loan £250k/max loan £2m - increase in max loan amount by £1m.

2 Year, 2.54%, £999 fee, 70% LTV - down by 0.24%.
2 Year, 3.19%, £999 fee, 75% LTV - down by 0.28%.
2 Year, 3.89%, £999 fee, 80% LTV - down by 0.10%.

3 Year, 3.58%, £499 fee, 70% LTV, min. loan £25k - down by 0.20%.

5 Year, 3.98%, £999 fee, 70% LTV - down by 0.30%.
5 Year, 5.48%, £999 fee, 85% LTV - down by 0.21%.

TRACKERS:

Remortgage Only
The Great Escape™
Lifetime Tracker, BBBR +2.99%, £0 fee, 80% LTV, min. loan £50k - down by 0.19%.

Remortgage Lifetime Trackers.
(Customers use their own Solicitors and pay all Legal Fees)
Lifetime Tracker, BBBR +2.99%, £0 fee, 80% LTV, min loan £50k, £375 cash back - down by 0.19%.

Loyalty Tracker.
2 Year Loyalty Tracker, BBBR +2.59%, £999 fee, 80% LTV, follow on rate BBBR + 2.69 - down by 0.19%.

Core Tracker.
Lifetime Tracker, BBBR +2.69%, £999 fee, 80% LTV - down by 0.19%.

Offset Tracker.
Special Offset Tracker, BBBR+2.29%, £1,499 fee, 70% LTV, min loan £200k/max loan £2m - increase in max loan amount by £1m.

FirstBuy Direct.
3 Year, 4.59%, £299 fee, 75% LTV, min loan £25,000 - NEW.

5 Year, 5.49%, £299 fee, 75% LTV, min loan £25,000 - NEW.

What are we withdrawing?

FIXED RATES:

Remortgage Only.
The Great Escape™
2 Year, 4.69%, £0 fee, 85% LTV, min loan £50k.
Remortgage 2 Year Fixed Rates.
(Customers use their own Solicitors and pay all Legal Fees)
2 Year, 4.69%, £0 fee, 85% LTV, min loan £50k, £375 cash back.

Loyalty Mortgage.
2 Year, 2.69%, £999 fee, 70% LTV.
2 Year, 3.37%, £999 fee, 75% LTV.
2 Year, 3.89%, £999 fee, 80% LTV.

5 Year, 4.18%, £999 fee, 70% LTV.
5 Year, 5.48%, £999 fee, 85% LTV.

Core.
Special 2 Year, 2.68%, £1,999 fee, 70% LTV, min loan £250k/max loan £1m.

2 Year, 2.78%, £999 fee, 70% LTV.
2 Year, 3.47%, £999 fee, 75% LTV.
2 Year, 3.99%, £999 fee, 80% LTV.

3 Year, 3.78%, £499 fee, 70% LTV, min. loan £25k

5 Year, 4.28%, £999 fee, 70% LTV.
5 Year, 5.69%, £999 fee, 85% LTV.

Large Loans.
2 Year, 3.49%, £3,000 fee, 60% LTV, min. loan £1m/max. loan £1.5m.
2 Year, 3.69%, £3,000 fee, 70% LTV, min. loan £1m/max. loan £1.5m.

TRACKERS:

Remortgage Only
The Great Escape™
Lifetime Tracker, BBBR +3.18%, £0 fee, 80% LTV, min. loan £50k.

Remortgage Lifetime Trackers.
(Customers use their own Solicitors and pay all Legal Fees)
Lifetime Tracker, BBBR +3.18%, £0 fee, 80% LTV, min loan £50k, £375 cash back.

Loyalty Tracker.
2 Year Loyalty Tracker, BBBR +2.78%, £999 fee, 80% LTV, follow on rate BBBR + 2.88%.

Core Tracker.
Lifetime Tracker, BBBR +2.88%, £999 fee, 80% LTV.

Offset Tracker.
Special Offset Tracker, BBBR+2.29%, £1,499 fee, 70% LTV, min loan £200k/max loan £1m.

Large Loans.
Offset Tracker, BBBR +2.47%, £5,000 fee, 60% LTV, min. loan £1m/max. loan £1.5m.
Offset Tracker, BBBR +2.99%, £5,000 fee, 70% LTV, min. loan £1m/max. loan £1.5m.


For full details of our new mortgage product range please refer to the new Rate Sheets dated 19 July 2011.

*MAX applications may be submitted up until 9pm Wednesday, 20 July 2011, but no support is available after 5pm.

Which Pensions? - Pensions need an image overhaul

We've been browsing and wondering what other pension experts and providers might suggest to help solve the UK’s pension pains.

Ros Altmann, director-general of Saga, the financial services company for the over-50s, and a former pensions adviser to the Government, believes "pension" has lingering negative associations with scandal and disappointment. "'Pension' has become a negative word and it should be used only for the money paid to you by the state," she says. "The rest are your own savings for your own future and should be called something else."  This is where IFA’s can really help you to plan independently how to use your money.

She also thinks. "We need to make pensions more fun, perhaps with a lottery prize of £1m every month to get people interested," she said. "Many young people play the National Lottery each week hoping for a win, but their pound is gone. Many others have premium bonds hoping for a big prize, but they earn nothing on their money. With a pension lottery prize, people would still have their money, would get extra from tax relief or even employer contributions and would also have the potential for investment returns." The cost relative to current spending on pensions marketing would be small, she admits, but offering savers the potential of big gains today, not just in the future, could reinvigorate long-term savings.

An interesting idea but if you want to plan for using your savings, whatever you call them, to work for your future Bishop Stortfords IFA’s can help you.

It is obvious we all need to save more to boost pension contributions…

Indeed this is exactly why the Government is introducing auto-enrolement from October 2012. Automatic enrolement will get 5 million to 8 million people saving for the first time or saving more for their retirement with contributions from their employer. 

People must be encouraged to save as much as they can for as long as they can, with as few savings breaks as possible, adds Patrick Connolly, head of communications at a leading IFA. He believes that the National Employment Savings Trust (NEST) – a national pension scheme into which all employees will be automatically enrolled from 2012 – will help many more people to save at least something for their retirement. UK employees will be automatically enrolled if they earn more than £7,475 per year and have been with their employer for at least three months.

Until 2016 the total annual contribution will be at least 2 per cent of an employee's earnings above £5,715, of which the employer pays in 1 per cent. From October 2018 employees must pay 4 per cent into the scheme, with another 4 per cent being made up by 3 per cent from the employer and 1 per cent in the form of tax relief from the Government.

The Department for Work and Pensions spokeswoman said: "We welcome the findings  that show that the majority of people will stay enrolled in their pension as it will be a welcome boost for those who are struggling to save on their own.”  But there is nothing to stop you saving independently if you want to opt out and invest through a leading IFA in Bishop Stortford.

Readers might also be interested in the following relevant articles:

Might you be in the running for a SIPP? 
Saving for your retirement 
Pensions and the law

The state pension is too complex and unfair…

Many believe the state pension system should be reformed, so there are few or no means-testing penalties and the kind of provision people can expect to receive in retirement should be made clearer.

"People aren't incentivised to save, because those with income below a certain threshold qualify for full state benefits, while those who exceed the limit see their benefits reduced or even removed," says Alasdair Buchanan, head of communications at pension provider Scottish Life.

"The problem is that income from private pension savings is taken into account when calculating some of these benefits. As a result, an individual who responsibly decides to save then loses some means-tested benefits and could end up with the same overall income as someone who hasn't saved at all." This isn’t fair.

Government plans to introduce a flat-rate pension for everyone, of around £140 a week by 2016 should address the issue, he says.  This would not only be fairer for those who have saved responsibly through IFA’s but it might also encourage young people to save more if they knew how much state pension they would get.

Research for the National Association of Pension Funds (NAPF) found half of those aged 18 to 34 would boost their saving if they understood what they would receive from the state on retirement. NAPF said the state pension should be simplified from its current state as one of the most complicated in Europe.

IFA’s in Bishop Stortford agree and can help young and old plan for their retirement alongside current reviews of the state pension.

Make a financial plan for retirement...

The latest Future of Retirement report from HSBC has found that people expect to ease into semi-retirement in their mid-50s before stopping work at an average age of 62 – regardless of the fact that some 17 per cent of the 1,000 adults questioned don't know what their main source of retirement income will be and a further 21 per cent say they will rely on the state pension.

"The emergence of this ostrich generation is a real concern," says David Wells, head of investments, pensions and savings at the bank. "Britons know that they need to plan and save more for their retirement, but they are failing to turn this knowledge into action."

But those who don't bury their heads in the sand enjoy a significant financial and emotional premium, the bank found, as the 39 per cent of people with a financial plan have retirement savings worth more than four times those of non-planners, often managed through an IFA.

"We need a step-change to overcome this ingrained inertia and help people prepare for their retirement." Ian Naismith, head of pensions market development at Scottish Widows, said.

People would like to have an average annual retirement income of £24,300, a significant drop from the £27,900 they hoped to have in 2009.   But many who are not members of final salary pension schemes are saving an average of just 9% of their income into a pension each month, only three-quarters of the 12% of pay that Scottish Widows estimates people need to set aside in order to have a comfortable retirement. 

It is never too late to start saving, talk to one of Bishop Stortfordsleading IFA’s and make a pensions plan.

Readers might also be interested in the following relevant articles:

Might you be in the running for a SIPP? 
Saving for your retirement 
Pensions and the law

Might you be in the running for a SIPP?

The big attraction of self-invested personal pension plans (Sipps) over other types of contract-based defined contribution (DC) plans is they can invest in a broader range of assets, including shares and commercial property. Historically, this made Sipps largely the preserve of equity partners in small firms looking to club together to buy their business premises. In recent years, however, Sipps have been implemented in FTSE 100 companies, such as BT and GlaxoSmithKline, to cover the entire workforce, and their popularity is growing.

Most second-generation workplace Sipps have a two-tier structure, with a limited fund choice for most staff and a self-investment option for senior managers and directors. Ann Flynn, head of customer management at Standard Life, says: “In most cases, the true self-invested service is targeted at the senior layer of the workforce. Perhaps 90% of schemes are arranged on a segmented basis.”

Such structures have become possible because Sipp charges have fallen sharply, so members who do not use the greater investment freedoms are charged no more than if it was a group personal pension (GPP). “The basic Sipp offering is very similar to a GPP and priced on the same basis,” says Flynn. “It is only when the member moves into self-investing that there is any additional cost. Financial advisors can help you look at your options.

Saving for your retirement

In the current climate everyone should be thinking of reconsidering their pension provision.  IFA’s can help you review your pension at any stage of your life.

Some in the news say a simpler, more generous state pension of £140 a week would remove millions from benefits and provide an incentive to save without costing taxpayers more than the current system, a study argues.

Research for the National Association of Pension Funds found that under the existing system a third of pensioners would be eligible for the means-tested pensions credit by 2055, but under a single-tier state pension this would fall to 5 per cent. The NAPF said the study showed that of the Government's two options for state pension reform, the single-tier system costs no more than the current system and helps more people.

"It would particularly benefit low earners, women and the self-employed. It would also support 2012 pension auto-enrolment reforms by confirming that it 'pays to save' and that savings will not be eroded by means-testing," the NAPF said. 

Whatever your income it would be wise to reconsider your pension provision sooner rather than later.  Enable one of Bishop Stortford’s IFA’s can help you look at your options in the light of the current economic climate and help you start to make changes that work toward maintaining or improving the quality of life you can hope to enjoy in your hard earned retirement years.

Pensions and the law

Legislation will be introduced in the Finance Bill 2011 that will remove the tax charge on borrowing linked to the cost of setting up, managing or administering the national employment savings trust (Nest), subject to conditions.

Those affected include employer, employees, Nest and its members, as well as other qualifying pension schemes when auto-enrolment is introduced in 2012.

The legislation will also remove the tax liability on any interest payments on late pension contributions made by an employer to qualifying pension schemes and provide a regulation-making power to deal with any unintended tax consequences that may emerge as a result of the implementation of Nest and the employer duty provisions as set out in the Pensions Act 2008.

The national employment savings trust (Nest) is not intended to replace existing pension schemes such group personal pensions (GPPs), stakeholder schemes and group self-invested personal pensions (Sipps).  Speaking at the first day of the Employee Benefits Pensions Summit 2011, Paul Gilbody, director of market engagement at the Nest Corporation, said that the scheme is also not designed for everybody to use.

“Nest is not designed for everybody,” he explained. “Not every organisation will end up using Nest and quite right too. Nest is designed for a specific population – those who are not currently saving for retirement.”

“There is an awful lot of good provision out there at the moment and that will continue. Some employers will just carry on with what they are doing at the moment. The vast majority are going to have to make some decisions about what [provision] they are going to put in.”

As one of Bishop Stortford’s most respected IFA’s we can help you make sense of the changes that are coming into place.