Planning for old age – “at least meet me halfway”

Today’s newspapers and news outlets are almost all carrying a similar story regarding the over 50s “sleepwalking  into old age” with respect to their pension provision following comment by the National Association of Pension Funds (NAPF) and a report by the Institute for Fiscal Studies regarding increased life expectancy.

(e.g. http://www.bbc.co.uk/news/business-20543308)

Such issues are extremely important as is the allied issue about older people sleepwalking towards an unhealthy old age by virtue of their inappropriate lifestyle choices.

There is no shortage of information on these topics but rather people just do not seem to want to put any effort into understanding these things, matters which are going to affect a great part of their lives in a very fundamental way. Rather like my disappointment at not winning the lottery can be largely explained by the fact that I don’t buy any lottery tickets so individuals must show greater commitment and take greater responsibility for their own future well-being.

We all know it’s boring, we all know the institutions have vested interests (note the focus here on pensions and not other forms of financial provision) and we all know it can be difficult – but not that difficult, not the basics anyway!

So that people can get their heads around some of the issues I attach below the link to a brief description which I wrote a few years ago and which has not changed in the slightest way – except become more urgent.

http://www.inmyprime.info/factSheets/biscuit.htm

Good and bad news about retirement funding

New research from international investment management firm, Baring Asset Management (Barings) shows that nearly half (15.7 million aged over 18) of people do not currently expect to use a pension to fund their retirement. The findings are part of an annual research program Barings undertakes looking at pensions planning and how people are preparing for retirement

The research shows that many people are relying on property, cash and even an inheritance to fund their retirement.   The number of people expecting that cash will form part of their retirement planning increased from 26% in the last survey in 2011 to 29% this time (some 10.5 million people).  The number that selected property as forming part of their retirement fund also increased two percentage points to 29%, equating to some 300,000 more people.

Even more surprising is that 17% of people, or six million in the UK, said they expect inheritance to help fund their retirement.  However, with the average UK inheritance estimated at around £45,000 per person, many people may be overestimating the role inherited assets may play in helping fund a retirement.

The study also found that one in four (25%) – 8.8 million people – admit they simply don’t know how they will fund their retirement.

These findings are good news in as much as they demonstrate that public trust in pensions is no longer a given and that people are considering other sources of funding – providing a challenge to the complacency of the existing pensions industry. However, they are bad news in terms of demonstrating many people’s continuing lack of preparedness for what is likely to be a long, unwaged and potentially impoverished period of life.

Abysmal knowledge about pensions

It has always seemed to me remarkable that our knowledge about many key aspects of life – whether financial, social or health-related – has to be obtained virtually by osmosis. Financial planning, parenthood, divorce… where do we learn what we really need to know about these and many other vital experiences? The answer, in respect of pensions at least, is that many of us don’t and either exist in a state of ignorance or just muddle by.

A worrying report in today’s Daily Mail, and no doubt elsewhere, highlights that the government is considering taxing the state pension at source. For now that’s not the worrying part, as experience shows that there is often (usually?) a huge gap between media scaremongering and what eventuates.

No, what did alarm me is that the article highlighted that research has shown that only four in 10 elderly people know the state pension is taxable and many discover it only when HM Revenue and Customs tries to claw back the tax later.  How can this have fallen under their radar?

Apparently about 5.6 million of Britain’s 12m pensioners pay tax, while the rest have an income below the tax-free threshold, £10,500 for 65- to 74-year-olds and £10,660 for those 75 and over.

John Whiting, tax director of the Office of Tax Simplification (OTS), which advises the Treasury on tax matters says bringing the state pension into the pay-as-you-earn system could reduce bureaucracy and would remove the need for around 1.6 million pensioners to fill in self-assessment tax forms.

Well yes. But let’s hope if this comes about that some of the money that is saved is invested in mandatory workplace pensions and retirement training.
Read more: http://www.dailymail.co.uk/news/article-2127157/Granny-tax-2-Fears-elderly-hit-state-pension-set-taxed-source.html#ixzz1rdPMlnMp

SOS – Financial education needed in the workplace

A recent joint report by the National Association of Pension Funds (NAPF) and the Pensions Institute (PI) at Cass Business School has found that half a million people retiring each year are being dramatically short-changed in terms of their total future pension income because of overwhelming obstacles that prevent them getting the best deal.

When they retire, people in the private sector saving in a ‘defined contribution’ pension – now the most common form of company pension scheme – use their pension pot to buy an annuity from an insurer. This gives them a regular income and is a one-off, irreversible decision that sets the size of their pension for the rest of their life.

According to the report, fewer than one in five people have the financial know-how needed to pick the right annuity at the best price. The rest lack sufficient understanding of factors like interest rates, inflation and longevity, and need some form of advice. And those savvy enough to ‘shop around’ for the best rate struggle to do so because the best shops are not signposted. It is virtually impossible to find a specialist adviser who covers the whole market and who is willing to help those with smaller funds.

The report also uncovered evidence of sharp practice and murky pricing in the annuity market, putting unsuspecting consumers at a huge disadvantage.

David Blake, director of the Pensions Institute at Cass Business School comments: “This report is a wake-up call to the pensions industry, the government and the regulators. If the annuity system is not radically overhauled, employees in defined contribution schemes in the private sector will continue to suffer massive detriment and the government’s new auto-enrolment regime will fail the very people it aims to help secure financial independence in retirement.”

However, more immediately it concluded that people get “too little support” from employers or providers when making a decision about their annuity – often they get nothing more than a leaflet pointing them to a website with a postcode-based search engine.

As ever, the workplace is the best place for providing education and knowledge – whether related to pensions, annnuities, general financial planning, health, or myriad other topics. Good employers will hopefully rise to the challenge in supporting their employees to reap the best rewards from a system that most have paid into with the best intentions and trust in future rewards.

And for those who are younger, financial education is definitely needed about the options available, aside from pensions and annuities, to provide for future financial needs and retirement.

For more: 

http://www.napf.co.uk/PressCentre/Press_releases/0176_Savers_left_short_changed_and_bewildered_by_unfair_annuities_system.aspx

NEST (Not Exactly Scintillating Topic)

This year sees the launch of the NEST (National Employment Savings Trust) pension scheme providing a route into pension saving that to date has been denied to many or not pursued by many. We wish it well and hope that individuals do really see the benefit of saving for their later life whether that will truly be retirement or will be some mixture of work and supplementary income provided by a pension.

As part of the preparation phase NEST has commissioned a survey from YouGov covering people’s understanding/attitude towards pensions with the following rather predictable findings. Only 6 per cent of people interviewed think pensions are ‘straightforward’. Only 4 per cent believe pensions are ‘easy to understand’ and just 3 per cent agree that pensions are ‘simple’. In addition, only 5 per cent of respondents found pensions ‘interesting’ and 2 per cent agreed they are ‘engaging’ (who are these people?). The words people more strongly associate with pensions are ‘confusing’, ‘complicated’ ‘boring’, ‘difficult’ and ‘off-putting’.

NEST will be competing with many other pension providers in trying to convince individuals that pensions and, in particular, saving through NEST is in their best interests. And even if people had the spare cash to save, bad publicity regarding low investment returns, plus high fees and administration costs have made savers highly sceptical.

Nor is the only way to save for later years through pensions alone. There are other ways, for example investing in property and then downsizing later or releasing equity. These have their pros and cons and also their problems, as a recent Which? survey has revealed.

The point is that the vast majority of the population has a long, long way to go to become sufficiently adept and confident in financial matters of any kind but, in particular, saving for retirement.

There will also continue to be a major problem as long as products are pushed by those with particular vested interests, “bigging up” the merits of their offering while failing to give people a detached, dispassionate and objective real understanding of the issues.

No number of whizzy phrasebooks or self-indulgent videos will remedy this.

On the fiddle?

At a time when many people ought to be saving in one way or another and yet aren’t owing to lack of financial literacy, lack of funds or a basic mistrust of the financial services industry and the long term cost of the advice of financial advisers it is interesting to take a quick snapshot of what is going on.

The cost structure associated with using a financial adviser is going to change in 2013 to make it more transparent and, hopefully, perceived better value for money. Unsurprisingly, surveys suggest that this will lead to a significant exodus of financial advisers from this kind of work. For more on the changes see a Which? summary:

(http://www.which.co.uk/news/2011/09/60-second-guide-to-the-future-of-financial-advice-264445/)

Financial advisers are people qualified in their field and are allowed to sell/advise specific products. OK so far.

But the overwhelming need is for people to understand what money is all about in a much more basic sense. Hence, amongst other things, the very laudable campaign by Martin Lewis of Martin’s Money Tips fame to start at a very early stage and bring such education into schools.

Another initiative is the Money Advice Service. Here are a few extracts from their site:

“Our vision is to enhance people’s lives because they take control of their money as a matter of course.”

“The Money Advice Service is here to help everyone manage their money better. We do this by giving clear, unbiased money advice to help people make informed choices.

We believe that the right money advice can make a difference to people’s lives. And when people take steps to manage their money better, they can live better too.

The Money Advice Service is a free, independent service. We were set up by government and are funded by a levy on the financial services industry.

Because we’re not selling anything ourselves, or for anyone else, you can trust our advice.”

Again, a very laudable idea, but in my opinion an underwhelming, low profile service which still does not attack basic financial illiteracy.

But that’s not the fun part. As can be seen above the service is funded by a levy on the financial services industry that is, in part, financial advisers who see this as a threat to their existence that they are having to pay for, adding insult to injury.

And, so, while the British population struggles with problems like “shall we do without heating to pay for food?” what debate is taking place between Financial Advisers and Money Advice Service? It revolves around the difference between “financial advice” and “money advice” and when does “advice” become “guidance” or, indeed, “education”.

The words “burns”, “Nero” and “Rome” spring to mind.

 

The need for personal financial education

Spring is here, we’ve had the budget, the clocks have changed and the immediate budget headlines have subsided – a good time to review where we are at.

So, we must get down to the serious stuff and there is plenty of it. We are entering a new governmental financial year and now is the time that all the cuts are going to start having an impact; on jobs, on funding, on contracts for both public and private sector. Also we are now firmly in the implementation phase of the abolition of the Default Retirement Age and employers and employees have a whole new challenge ahead of them.

Meanwhile, people keep getting older and reaching, or not reaching, retirement age as the case may be. But, nevertheless, many are looking ahead of them and seeing that life may not be as rosy as they would have liked or even expected, only a few years ago. Pensions may be inadequate, retirement plans are being put on hold and the spectre of having to find funds for care costs for oneself or one’s relatives is looming larger.

No doubt we will muddle on and, hopefully, in the long run times will get better. But some of the fundamental problems will not go away and one of them is the general lack of understanding of what it takes on an individual basis, structurally and financially, to get through life in some kind of a balanced fashion.

To do some things in life you have to throw large sums of money at them; for others you just have put in time and effort and commitment. This falls into the latter category.

It really is time people had a better grasp of the financial aspects of life and thereby more confidence to plan the lives ahead of them.

But they need help. For more click here

Weak financial planning

In case you hadn’t noticed, this week is Financial Planning Week – we are now halfway through so catch it before it disappears.

In fact, there seem to be number of Financial Planning Weeks during the year run by various financial and financial advisory institutions. This one comes courtesy of the Institute of Financial Planning.

Enough of flippancy.

The Institute says that only 14 per cent of people have put in place definite long-term financial goals, while nearly half are struggling to make their money last until the next pay day.

In an article in the Daily Mail, Nick Cann, chief executive of the Institute, says: ‘Many households are finding it difficult to cope with the adverse economic backdrop and I can’t see that situation improving in the short term as unemployment rises. People need help to take control of their finances and that’s exactly what Financial Planning Week aims to do. By taking advice and putting a long-term plan in place, many households can put their finances back on track.’

The Institute has set up http://www.financialplanningweek.org.uk, a website which contains much useful information, including top financial tips and advice on both long-term savings and keeping a lid on debts.

Cann says: ‘Too many people are merely sold to. We see it all the time with big banks. What happens is these people end up with a mishmash of financial products they don’t really understand. By contrast, what a financial planner does – and many advisers do – is start by addressing an investor’s goals and objectives. Products are only brought into the picture as a means of achieving these objectives.’

This may or not be true but what is undoubtedly true is that huge numbers of people need good financial advice. Although in my prime focuses on the Over 50s, to be in a sound financial position in the second half of our lives requires attention to our finances throughout our lives – pretty much on a continuous basis.

In the parlance now going around; first we accumulate assets and wealth (essentially fill our retirement biscuit tin) and then we decumulate our assets and wealth (essentially empty our biscuit tin) and we need to be thinking and planning in earnest at every stage in the process.

I am afraid it can’t all be done in a week but we might as well start somewhere.

 

The eyes wide shut approach to retirement planning

According to a recent study commissioned by Prudential nearly a third of UK couples (32 per cent) aged 40 and above, but not yet retired, say they don’t know or understand the details of their partner’s retirement savings, with 22 per cent saying they have never talked to their partner about financial planning for retirement.

Women are even less likely than men to discuss financial planning for retirement with partners, with almost a quarter of women (24 per cent) saying they have never discussed this, compared to almost one in five men (19 per cent). It’s a bit difficult to understand this particular statistic (who are the greater numbers of men discussing it with?) but the general point is clear. A further 12 per cent of women and 11 per cent of men say they know nothing about their spouse’s or partner’s finances – and they’re not really interested. 

Apparently affluence plays a critical part in the extent to which couples talk to each other. Almost three-quarters (73 per cent) of those surveyed who said they had discussed financial planning for retirement with their partners within the past year have a household income of more than £70,000 per annum while half (50 per cent) of those surveyed have a household income of less than £20,000 per year.

As Andy Brown, investments director at Prudential, says: “It is incredible that so many people do not know the details of their partner’s retirement savings.  Essentially, this could mean millions of UK adults are banking on hope as their core retirement strategy and are approaching what is arguably the most important financial decision without a full understanding of their household financial situation…The reason this is so important is because the longer retirement planning goes unresolved the harder it is for couples later in life to try and get a decent financial retirement plan in place.”

It may be that low income couples prefer not to face up to the horrible truth of what retirement may look like but, even so, ignoring the situation won’t improve matters. Ongoing and regular financial planning sessions in the workplace – from a non-partisan source – has got to be part of the answer. Encouraging people to take time to question and understand their current and future financial position in light of their lifestyle and aspirations is a real, relatively low cost benefit that good employers could provide. “Retirement planning workshops” held only in the run up to retirement are of little benefit in terms of having a positive effect – including encouraging more open communication with partners – on people’s ongoing financial situation.

Click here now to see some of what we offer:-

 http://www.inmyprime.info/aboutUs.html

 http://www.inmyprime.co.uk/Courses/Workshop01.html

Employee financial literacy – the benefits to employers

Following on from my previous blog relating to the general need for a vastly improved level of financial literacy across the nation as a whole, it is reasonable to ask why any such initiative should be linked to the workplace rather than through some other mechanism, particularly for smaller businesses already drowning in “add-ons” to the basic notions of trying to trade and make a surplus at the end of the week.

One basic reason is that working provides structure to our lives and the workplace is the one environment which provides the necessary routine, discipline and camaraderie for us to focus in and confront our “gremlins”. Once out of this arena, confidence and motivation will dissipate whatever good intentions may have existed. “Tough” you may say.

So there has to be more to it than that. There have to be positive reasons why employers should take it on board. There are. But let us be clear – employers are only being asked to provide an enabling mechanism – possibly a speaker and a room that is available at lunchtime or after work.

However, more than that there are some very positive reasons why employers should see it is in their interests to support the idea.

Firstly, there is strong evidence to suggest that stress, lack of concentration and lack of productivity are all being impacted by individual financial worries so much so that these worries account for a significant amount of time off work and a much greater amount of time at work dwelling on financial concerns rather than working.

Secondly, in an era when pensions and pension provision are changing rapidly it has to be to everyone’s advantage for people to be able to take on board what is happening to their own pensions and how better they might participate in what their employer is putting forward, Or, if not, they should understand fully the implications of alternative courses of action. At present there is just a huge “reality gap” between what people are saving and what they need to save.

This leads us to the third point which is that clear retirement plans will lead to a smoother transition from work to non-work at the most appropriate time, in the most appropriate manner following open and meaningful discussion between employer and employee. Financial planning is only the monetary expression of life planning in general and this includes all manner of things at all stages of life; flexible working, sabbaticals, when is the need for advancement and when is the time to ease off, to name but a few.

Fourthly, when finding appropriately skilled workers is going to be increasingly difficult this will promote loyalty, improve morale and provide the space for them to focus on their jobs. And in a world of increasing corporate social responsibility it will signal an organisation which is good to work for and good to deal with.

Lastly, it cannot be overstated that the core of good personal financial discipline runs totally parallel to good financial discipline in any arena. Those who have the right attitudes and mindsets will also use them for the good of the organisation.

However, do beware of the dangers of ambiguity. One organisation I worked for had a well meaning code of conduct which included the exhortation “Treat the company’s assets as though they were your own”. Unfortunately, I had a colleague who did exactly that!

The need for personal financial education

There is now a growing amount of feeling and of evidence that the general level of financial literacy in the country must be improved substantially. This is the only way that individuals are going to be in a position to manage financially through their lives and into retirement and, more immediately, out of the situations which have been caused by the recession and, to put it mildly, by the extremely relaxed attitude people have taken towards saving and indeed basic financial housekeeping over the recent past.

We are, by no means, alone in this view. Just as the global financial re-adjustments have taken their toll across the board so the realisation that there exists an enormous lack of knowledge and confidence in anything pertaining to personal financial matters has also hit many countries, pretty much simultaneously. And they are beginning to do something about it.

The question is “Where do you start?”

In the long term the place has to be at school level, and individuals have to be kitted out from the very beginning to meet life’s various challenges.

But how do we address the problem as it stands right now? There are many adults who are having to think through the implications of their own life planning; with children, schooling, housing, retirement, elderly relatives, care costs and so on all needing to be brought into the mix. Superimposed on this is the emerging awareness that life is going to go on for longer than we had previously thought and that we’re all going to have to come to some kind of a view about the balance between the working and non-working portions that we are planning for. The notion of retirement, as such, will be increasingly seen as redundant.

For those older workers who are already quite a way through their working lives the potential to review and revise decisions previously made may be extremely limited. And we are now likely to be facing a period of acute and extended austerity if we are not to saddle future generations with an intolerable financial burden.

Gradually crystallising is the recognition that the most suitable place for this financial education to take place is within the work environment. Some far-sighted organisations are already putting schemes in place but, for those who are not yet, they should recognise that there exist enormous benefits, all ways round, in introducing some form of general financial education for their employees.