Tag: pension freedoms

ice cream pension 6 Oct

Can you be trusted with your own pension pot?

Are you like a 5-year-old outside a sweet shop with a ten-pound note when it comes to your money? The UK government seems to think so!

But then again let us look as some recent research:

The average person in Britain has a poor understanding of many aspects of personal finance.

We Brits grossly underestimate the cost of big life events such as having children, the cost of further education and retiring.

The average person thinks that it costs just £50,000 to raise a child from birth to leaving home, one study puts the actual figure at £229,000.

Similarly, we think the average debt for a student coming out of university is only £21,000, when the actual average student debt is more than £44,000.

Perhaps most worryingly, the average person thinks they only need to have a pension pot of £124,000 to get an annual income of £25,000 per year, including their state pension. A quick check of any pension calculator shows that is woefully short, and most people will need well over £300,000 (taking receipt of the full state pension with 30 years NI stamps into account).

Brits are “worryingly exposed” to financial shocks, a report from Schroders Personal Wealth has found.

A survey asked 2,000 UK adults how they feel about their financial situation.

This was then rated in four main areas: getting the basics right; managing borrowing; protecting against the unexpected; and planning for the future.

She is not free!!

The surveyed Britons scored only 3 out of 25 when it came to protection against the unexpected, and for planning for the future the rating was only slightly higher, at just 5 out of 25.

Pension Freedoms

The British over-55s have withdrawn more than £30bn from their retirement savings since the introduction of pension freedoms in April 2015, according to the latest statistics from HM Revenue & Customs. Savers withdrew £2.4bn from their pension pots in the third quarter of 2019, an increase of 21 per cent from the equivalent period in 2018.

The number accessing their savings in this quarter was 327,000, HMRC said, a 27 per cent increase on the 258,000 who did so in the same period a year ago. However, the average withdrawal per person has fallen — from £7,600 last year to £7,250 in the third quarter of 2019.

Back in 2015, the hubbub was that investors would start shoveling money out of their pension and not think about the consequences. But the reaction to the COVID crisis suggests that lots of people understand the associated risks. Investors are taking more responsibility for their retirement and thinking ahead to the future.

However, it’s one thing to choose a flexible retirement option knowing the risks, and it’s another to experience them first hand. The recent stock market dip would’ve shaken the confidence of lots of pension investors.

If you’re thinking about taking money from your pension, it’s important you get the full picture first and get some expert advice for free.

If you have a defined contribution pension today, things are different. From the age of 55 (rising to 57 in 2028), you normally have the option to keep your pension invested how you choose and withdraw money when you need to? You can even withdraw the whole pension in one go if you want to. Usually up to 25% of the pension is paid free from tax and the rest is taxed as income. All of it if it is under 30,000 GBP

Giving up on secure income brings with it extra risk and responsibility. The fear when these freedoms were introduced was that investors wouldn’t take this seriously and could end up running out of money earlier than planned. But the recent drop in people flexibly accessing their pension might suggest that they’re being more sensible, and perhaps deserve a little more credit.

So, with this information to hand, the Government seems to be putting up many hurdles that counter the pensions freedom act of 2015, making it harder and harder to cash in your pension. Many experts foretelling the end to Pension freedoms.

Are you sure you want to cash in Sir?

It is the responsibility of the Financial Conduct Authority (FCA) to police the industry and protect consumers.

So, it’s no wonder that the regulator has tried to make sure people are using their new freedoms wisely and that firms are only recommending transfer where appropriate.

Putting the £30,000 ($38,704, €32,959) limit in place meant smaller pots could be accessed without advice, which would likely not have much impact on a person’s overall retirement pot.

The balance has got to be your health and your future, and how much time you really feel you have left versus what you have already got in your bucket list.

Doors are closing on Pension Freedoms

All this means if you are 55 years old now, and you are adamant you could do a better job yourself with the cash from your pension and place  in an investment vehicle your uncle Charlie knows about, or a startup or perhaps, maybe you know of a great property that just needs a lick of paint and you can double your cash, well they do on the telly every day eh! Or you can take advice from experts.

But you got too be quicker based on the above research many experts feel this is the prelude to a turnaround on how you can move or cash in your pension.

One really good reason to have a pension review now, is that Jersey has only recently become a jurisdiction available to non-residents. So, if you are 55 years and older and have a QROPs that is currently not getting a good return, or you haven’t seen your Broker for a while, or maybe you want to access 100% of your Pension money ASAP, then you need to speak to us.

Have a coffee with our Bangkok Based financial experts and you will be wiser for it and at the very least make a more informed decision over your future.

**Terms explained!

Pension freedom rules: The rules introduced on 6 April 2015 allowed retirees to take as much out of their defined contribution pensions as they wanted. Before this, most people were restricted as to how much they could take out in one go.

Drawdown: A way that people from age 55 can flexibly access their pensions. For example, drawdown is flexible since you can take out as much as you want. It’s a higher risk option as your income varies depending on the performance of the investments you choose. The first 25% will be tax-free and the rest taxable.

Lump sum payments: A flexible retirement option that lets you reach into your pension and take however much you want as a single cash payment. 25% of the amount will be tax-free and the rest taxable.

Annuity: A retirement option that will pay you a regular income that’s guaranteed for life.

55 the new retirement age 15 Sep

55: The new 65 and spending your pension!

Since the government in UK introduced Pension freedoms in 2015 over 90% of UK people have taken most of not all of their private pension pots, but what do they spend their money on?

Don’t wait to Travel the world

According to one national newspaper many 55 years olds believe as much in today than they do in the future realising that they are not getting any younger.  

is 55 the new 65?

One former 56 year old engineer from Essex told them:

“You see all these pensioners in the holiday resorts asleep all day, I mean some of them fall asleep during the best parts of their holiday, proving that you can wait too long to enjoy yourself. So for me I wanted to enjoy myself whilst I can,  I would kick myself if I had loads of money when I am 70 but can’t even get up the stairs to the wonders of the world.

One of my bucket list things to do is I want to see the Great Barrier reef and SCUBA  dive the corals, but I am  concerned that they won’t let me go if I am too old. So it is a balance between being young enough to enjoy life and not too old to remember it, so for these reasons I took my pension pot at 55 last year and been on a couple of life changing holidays since!”

Another somber reason people took their pension pots was they have become increasing concerned about mortality having seen many young virile friends die to  many causes.

 Road traffic accidents was one. We asked a group of Students at Liverpool University campus in 2018 (about 20 rather inebriated 20 somethings I might add, nice to see your grant money put to good use) who had had friends die from car or motorcycle accidents, and around 6 had lost friends, then we asked about suicide and 4 had their hands up, drug induced deaths 7 told us they lost friends to drug abuse, but the one telling factor was cancer it was astonishing to see only 4 people had their hands down and had lost young friends and family to this devastating disease.

At the end of the day 55 year olds will have seen many family members die over their lifetimes, (sorry students if you think University was hard, strap in sweeties because the ride is just going to get a lot  rougher for you)  Our middle aged people would be lucky to still have at least one parent still about. Also at 55 they will have lost friends and colleagues to all the above causes.

So to this end 55 years old feel as mortal as anyone, but still would probably have a lot of wherewithal to continue through life with some degree of health and vitality, so is now the time to enjoy life before the grey hair and bones start to ache too much? Only you can decide this.

Point of our little students union excursion was a few beers and the realization that even young people look both ways when they cross the road, and just to make it to state pension age is not a given. The UK Office of National statistics tells us that around 13% of all people do not make it to 65 years old in all race creed and religions.

When the UK government introduced the state pension just after World War 2 for men turning  65 years old, they knew that few people actually made it to 65, so they were always going to be ‘quids in’ on the deal to take cash of you monthly to save for your state pension, and  if you die well before your 65th Birthday like the majority did back then, you never not get it back of the government, unlike you can with a private pension ( as in  your family could claim it after you die).

Invest in thy self

Due to the advent of the internet and freedom of knowledge more people are learning about investing and compound interest, good financial advisors are educating the world about the basics of how money can make money and although most trust others to manage their pension pots, some are learning the basics of wealth and cashing in their private pensions and learning to invest.

The key tenets are always that savvy investors think long term and never invest more than can afford to cry over and lastly to diversify, in high middle and low risk investments accept that you will lose some and win some and it’s the middle ground where the income comes from.

1 dollar goes where?

We spoke to an Australian man who has been day trading on etorro, an online investment application where he takes consul from top investors and mirrors their day investments for many years, and it has afforded his travel around the world for the last ten years he told us

“It’ all about composure, setting in stops so I don’t lose more than I can afford, and taking small to very good returns each day, some days I make a dollar some days I make 100 I never get too excited and just see it as work. I put the hours in read the news, watch Bloomberg and never let emotion get involved, It is not a casino, sure when you make a lot you smile, but be ready because there is a loss somewhere that usually corrects it, most of all it is fun for me.

 I recently cashed in a pension pot last year but I have not put all my cash in day trading, I bought some Government bonds, Invested some in Gold, I do some forex as well as some riskier investments. If you are not really interested in world affairs or have some leaning towards finance yourself, then give your cash to a trusted advisor who has been recommended to you, and let them manage your cash, just don’t blow it in the casino or you will be a sorry mess”

If you use some of your pension pot to educate yourself to make more cash, then the world can become your oyster!

Startups

Most 55 year olds will have a career or two under their belt and would be considered experts in one or two fields, and will by now lamenting why they know about so much stuff now, when life is 60% over. We always ask ourselves; if you could be twenty again and now what you know now, what would you do different?  Why don’t 20 years olds listen to us? And why we moan so much?

In recent research 18 % of all 55 year olds have invested the pension pots in their own start businesses, again the internet is making it possible for almost every industry to sell products and services online. However many pre 55 year olds want to start but need some startup cash and have to look around for an Investor.

Finding an investor seems so easy if you believe what the internet tells you, just join a crowd funding site and soon cash will come pouring in, the sad fact is you have to find investors who have more than a slight interest in your business model, investing is like dating, you have to find the right fit and your investor is probably wealthy and wants to help you so they are looking for businesses that they know and if your business model is new and dynamic it will take a lot longer to get bites.

Further to this you are giving away equity, sounds fine now as you are a startup but what if your model really takes off and you find yourself sat across the table from a really big consortium who is talking 8 figures in USD and you have given away 48% already.

Releasing a pension pot and putting some towards your own capital you need to get going may be an avenue that is right for you, if you are convinced you have a world beating idea then what is to stop you using your own cash for yourself?

Learning about investors and Venture capitalists is another career in itself, plus your new start up career and the two previous ones you did to get to where you are now, there is business plans, meetings, pitches and then marketing yourself, you have to learn to be an all-rounder to be successful whilst not getting a salary for many years if you are bootstrapping, and then after all this you meet a Venture Capitalist at a boozy networking event and the first word out of their mouths is:

 “What’s your profit right now?” and you have to resist throwing your cucumber sandwich in their face!

Cashing in a pension and using some of the cash can save you a lot of heartache giving away equity, surviving on breadcrumbs, and conversing with people who care little about how you want to change the world.

The boring stuff

Other notable but mundane things people spend their pension pots on at 55 were weddings, home improvements and a new family car, 2% actually admitted they will spend it in the casino, so perhaps opening a casino would be actually quite a good  startup idea,  we have already done the research, you are welcome!

For help cashing in some or all your pension pot especially if you have a QROPS that will allow FULL access and encashment from age 55 tax free by moving  to our new jurisdiction of Jersey in the Channel Islands and other free impartial financial advice

contact us here.