300k Unadvised retirees exposed to drawdown danger

I’ve just been reading a report which said that hundreds of thousands of unadvised drawdown investors are unaware they can scale back or even stop their withdrawals, according to new research from a major pension provider.

In April, the Company concerned carried out an online survey of 2,028 adults aged over  the age of 55 who had accessed their defined contribution pensions since 1 April 2015.

What this survey showed was that 52% of those surveyed did not know they could reduce their withdrawals, and a further 56% were unaware they could stop withdrawing money altogether.

If these figures are reflective of the general population – of which 615,000 are in drawdown – then around half could be exposed to much more risk if stock markets plunge and the value of people’s remaining funds reduces dramatically.

The head of retail platform strategy at the pensions firm, said anyone unaware of the flexible withdrawals provided by drawdown could seriously damage their savings.

‘If investment returns come to a sudden halt, savers need to be prepared to step on the income brakes,’ he said.

‘People who are unaware they can slow down, or stop their withdrawals, could seriously damage their savings, and deplete their pots too soon.’

What concerned me was that the implication of the report was that a huge number of investors were still in the “accumulation” stage of their pensions rather than moving to “decumulation” now that they were in drawdown.  This fact could be extremely likely given that so many were unadvised.

Of course, maybe “accumulation” is the right answer for some.  But if they haven’t taken advice and don’t know about the flexibility afforded by drawdown…

Are you in drawdown? Are you about to go into drawdown? Are you or will you be in the right type of contract? Have you gone ahead and taken income without taking advice?  If this is the case, perhaps the cost of the advice may well be worth the money in the long run.

If you would like to chat to us about your options, give us a call on 0141- 956 5525 or drop us an email at info@abfm.co.uk.  We are always happy to talk.

Five reasons why self-employed people should take advantage of the power of their pension…


The picture-perfect view of being self-employed is understandably attractive: the notion of being your own boss and doing what you love under your own steam.

In fact, the number of self-employed workers in the UK has steadily risen from 3.3 million in 2001 to 4.8 million in 2017, according to latest figures.

However, recent statistics also show that most self-employed people have little confidence in their pensions and almost half (45%) of self-employed workers aged between 35 and 54 have no private pension at all.

The reality is that your pension is one of the most powerful saving tools available and has many advantages that other saving methods don’t. Therefore, those who are self-employed and not using a private pension could be missing out on a lot of benefits in later life.

To help the self-employed, a pension advice specialist has outlined five reasons why they should take advantage of the power of their pension.

1. Compound interest

Understanding what compound interest is and how it can benefit you will help you stay ahead of your peers when it comes to your savings. Put simply, when you save money it should earn interest. This interest can then earn more interest.

The average investment growth (interest) you get in a pension tends to give your savings more opportunity to grow than other tools, such as a standard savings account or a cash ISA. This boosts the growth you can enjoy from compound interest.

2. Tax relief

Tax relief is one of the greatest USPs of a pension as it immediately increases the value of your contributions, which is then multiplied year after year by compound interest.

For basic-rate taxpayers, when you contribute to your pension the government adds back the 20% that is usually deducted from your earnings. This means that if you add £80 to your pension the government will top this up to £100. Higher and additional rate taxpayers can also claim back the extra 20% or 25% they pay in income tax.

3. Take back control

Being self-employed means you’re in control of many things that your peers maybe aren’t. Saving into a pension can help extend that control to later in life, by giving you more money and income options to choose from than relying on your business or assets like property.

4. Don’t rely on your state pension

Self-employment might mean that you don’t qualify for a full state pension as you pay a different level of National Insurance to those who are employed.

Fully utilising a private pension and the power it gives you will mean you could be in a position where you can be sure that you won’t have to rely on the state pension in the future.

5. History shows us that stock markets work

There’s a good chance that a proportion of your pension is invested in the stock market. And when it comes to stock markets, news headlines are often full of sensationalist doom and gloom. This can understandably cause worry and fuel people’s distrust of pensions.

It’s really important to understand that going up and down all the time is what stock markets do and history shows us that, as a whole, they have always tended to rise over the longer term. The best thing to do is pay as little attention as possible to short-term news headlines and trust decades worth of reality.

I’ve been a sole trader and it can be tough. Well-meaning friends talking about how they wished they had the freedom of being their own boss and ignoring the huge uncertainty that can come with being self-employed. When’s the next job coming in? Will clients pay on time? Will I have enough to get by in the future?

Pensions are extremely powerful and if yours is properly managed you can look to your financial future with much more certainty. And it could mean even more flexibility and freedom when it comes to the choices you have in life.

It just doesn’t make sense to ignore or neglect your pension, especially if you are self-employed. And when it’s so easy to find out how your pension is doing and how to get it working as hard as it can for you.”

The Five Main Types of ISAs


THE ISA FAMILY

  1. The Basic ISA 6 – April 1999

The original ISA has two investment components: stocks and shares or cash. These are now interchangeable, so you can transfer from a stocks and shares ISA to a cash ISA, or vice versa. 

Available from age 18 (16 and 17-year-olds may start one but only choose the cash component.)

2. The Junior ISA (JISA) – November 2011

Available to children under 18 who do not already have a Child Trust Fund (CTF) account. Both cash and stocks and shares variants are available.

Available from ages less than 18. Investors cannot also have a Child Trust Fund (CTF). JISAs are available to any child born before 1 September 2002, after 2 January 2011, or born between those dates and whose CTF funds have been transferred into a JISA.

3. The Help to Buy ISA – Dec 2015

In practice this is a variant of a cash component basic ISA. Aimed at first-time buyers, its main benefits revolve around home purchase. It has now been overshadowed by the Lifetime ISA (see below) and will be withdrawn from 1 December 2019, although existing investors will be able to continue making contributions.

Available from age 16 and over. No new plans can be started after 30 November 2019. Help to Buy bonus must be claimed by 1 December 2030.

4. The Innovative Finance ISA – April 201

These relatively new ISAs are limited to investments in cash and two specialist, higher risk lending areas (peer-to-peer loans and ‘crowdfunding debentures’).

Available from age 18 and over.

5. The Lifetime ISAs (LISA) – Apr 201

The LISA is aimed at encouraging saving for first home purchase or retirement by adults under the age of 40. It provides a government bonus, but comes with penalties if funds are withdrawn before age 60, other than for a first home purchase. To date few providers have chosen to offer LISAs.

Available from age 18 to 39. Contributions cannot be made after age 50.

INVESTMENT LIMITS

The maximum overall investment across all ISAs in 2019/20 is £20,000

There are sub-limits for Help to Buy ISAs and LISAs:

 1. The maximum Help to Buy subscription is an initial £1,000, plus £200 a month for the duration of the tax year in which it was opened.

2. For LISAs the maximum subscription is £4,000 in each tax year.

3. For JISAs, the maximum contribution is £4,368 in 2019/20. In addition, a 16- or 17-year-old can subscribe £20,000 to a cash component basic ISA (including a Help to Buy ISA)

 Subscribers may only open one of each type of ISA in any one tax year. This means in 2019/20, subject to eligibility:

  1. A basic ISA with a stocks and shares component
  2. A basic ISA with a cash component or a Help to Buy ISA (a small number of providers incorporate both types within the one ISA wrapper)
  3. An Innovative Finance ISA
  4. A LISA

If an ISA is transferred in full, the one-ISA-per-type-per-year rule still applies.

PASSING IT ON

ISA rules were amended in 2014 to allow the value of any ISA to be inherited and used as an ‘additional permitted subscription’ (APS) by a surviving spouse or civil partner.

Since April 2018, generally the ISA tax benefits remain during the administration period and all investments, plus any subsequent growth or return, form part of the APS.

So the ISA’s tax advantages can outlive the original ISA owner, with their ISA holdings and tax benefits normally being transferable in full to the survivor.

If you would like any further information about ISAs please give us a call

Nic Cicutti: Why Which? should never have got involved in financial services

I read the following article in Money Marketing by the well respected Financial Journalist, Nic Cicutti, last week and was interested about the take he had on the subject.

“Lessons can be learned from the failure of the consumer group’s foray into offering financial products

What are we to make of the news last week that Which? magazine s planning to close its mortgage broking and insurance advice businesses? Dozens of staff are likely to lose their jobs at the two subsidiaries when they shut their doors in the next couple of months, and the jury is out on the survival of Which? Financial Services, which employs 130 people and made a loss of £2.7m in the year to 30 June 2018.

Doubtless, there will be a few advisers who, if not literally rubbing their hands with glee at the news, will be feeling a quiet sense of vindication at the fact a sometimes-sanctimonious critic of their own work is now in serious financial difficulties. Let me say at the outset that I feel desperately sorry for staff at the two businesses whose closure is imminent. Hopefully, the best in both will be able to find new roles with some of their erstwhile rivals.

But I can’t help feeling that the 10-year experiment was a road Which? should never have gone down in the first place. Back in September 2009, I remember Which? chief executive Peter Vicary-Smith saying he wanted to “extend the organisation’s brand”, and offer financial products to both its million-plus members and the public in general.

“Which? is a phenomenally well-trusted brand, not just in the areas in which we traditionally operate,” he said. “People would trust us to offer an enormous range of goods, fairly and for a reasonable price.”

At the time, Vicary-Smith’s vision marked a radical departure for Which?. It included the possibility of capital-raising for acquisitions and even striking joint ventures with commercial partners.

In the end, though, the businesses it gave birth to were more prosaic in their approach.

The problem for both of them, certainly the mortgage one, was that they were hamstrung. On the one hand, they needed to make money, clearly. On the other, they had to reflect some of the ethical values of the consumer organisation whose name they were “borrowing” to market themselves to their prospective clients.

At the time, I was critical of the move. One of the difficulties its advisers would face was that the mortgage market is, by its nature, a challenging beast to ride, and home loans are not always what they seem at first sight.

These are products with a long tail. They are closely linked to one of the most powerful aspirational needs of human beings – that of providing a shelter for yourself and your family.

My concern was over the potential reputational damage to Which? of giving the wrong advice or, more likely, of giving good advice which nonetheless led to negative consequences for consumers because of events that could not have been foreseen several years before.

And as someone who used to write for Which? Money back in the day, I feared there could be a conflict of interest between a publication which had built a reputation for fearless pro-consumer advice, and the grubbier needs of a commercial organisation whose entire existence was predicated on the good name of its parent – a name that had taken more than 50 years to build up back in 2009.

Given the plethora of good-quality mortgage brokers in the market at the time and now, it was hard to avoid the conclusion that the whole point of Vicary-Smith’s grand ambition was not so much to improve consumer choice but to monetise its 1.1 million-strong customer base, many of whom were affluent, middle-aged people with significant disposable incomes.

To be fair, I think Which? Money magazine coped admirably with the parent company’s move into financial services.

There was never a hint that the editorial line was in any way affected or influenced by the commercial interests of Which? Financial Services.

The difficulty was that the separation between the two entities – the campaigning pro-consumer stance and the straightforward commercial business – was never straightforward. For example, Which? Mortgages was charging a fee of up to £499 for its service. Granted, it was a Rolls-Royce level of service, with a lot of hand-holding involved. At the same time, however, it also received a commission from lenders on completion.

Who could say whether the advice was any less biased than, say, John Charcol or L&C Mortgages, both firms with an equally good reputation among borrowers?

In the end, I suspect that commercial realities are what did it for Which? Mortgages and its insurance arm.

Vicary-Smith, meanwhile, left Which? in October 2018, after trousering an annual salary and other remunerations of £500,000 for the 2017/18 financial year, including a £166,000 “bonus”.

According to Third Sector, a magazine covering the voluntary and not-for-profit sector, there was also a further payout of £331,000, most of which was pay in lieu of notice, because Vicary-Smith agreed an earlier departure date to allow an orderly handover to the organisation’s new chief executive.

As part of the deal, some of this extra dosh continues to be paid in the current financial year. Nice work if you can get it.

I’m sure the scores of financial services staff who lose their jobs at Which? won’t begrudge him a penny of it.”

Johnson pledge to cut tax

Would you believe it?

Tory leader contender Boris Johnson pledged to cut income tax bills for those earning more than £50,000 a year, if he wins the race to succeed Theresa May as Prime Minister.

Speaking to the Telegraph, Johnson said he would use the money currently set aside for a no-deal Brexit to raise the 40 per cent tax rate threshold to £80,000, cutting taxes for around 3 million higher earners. As an MP, the former foreign secretary earns £79,468.

“We should be raising thresholds of income tax so that we help the huge numbers that have been captured in the higher rate by fiscal drag,” he said.

While some of the costs would be offset by the no-deal Brexit fund, if Johnson is named Prime Minister, the Telegraph calculated that the move would cost approximately £9.6bn per year.

Commenting, Labour’s shadow chancellor John McDonnell said the proposal highlighted “how out of touch the Tories are”, the BBC reported.

According to The Guardian, McDonnell added: “Exactly as predicted, the Tory leadership race is degenerating into a race to the bottom in tax cuts. When there are 4.5 million children in poverty, 1 million elderly in severe poverty, the schools’ budgets and our police service stretched to breaking point, this [is] the Tory priority.”

I can see his point!

Should I Stay or Should I Go

Oh dear, dear. I have to confess right here to being old enough to remember those words of Joe Strummer and Mick Jones back in the eighties. Maybe they echo some of the thoughts which have been going on in Mrs May’s head of late although she doesn’t quite strike me as being a fan of The Clash.

Whilst the latest news tells us that Theresa May will step down on Friday 7 June (today), we’ve then got the subsequent leadership election getting underway from 10th June. And with all the shenanigans that it will involve. Those hoping to see some light at the end of the Brexit tunnel are still very unsure what her departure might actually mean in terms of getting Brexit decisions made. Or not made. Whether you think that her departure as PM is a good thing or not, the whole thing throws yet more short-term uncertainty into an already very uncertain situation. At the time of writing, at the end of May, (oh the irony) the latest inflection point around a possible fourth attempt at getting the Withdrawal Agreement though the house of commons was all too much. It looks though we are about to enter the next phase of the Brexit saga with as much clarity as a very muddy pond.