Why MetLife
produced this report
The UK pensions debate needs to move on from focusing on problems to
delivering solutions. Consumers and Independent Financial Advisers can only
benefit from a debate which focuses on practical solutions to genuinely pressing
problems. Instead of talking about a pensions crisis, we should be focusing on
how to help individuals and Independent Financial Advisers to shape that debate.
The current generation of over-50s are 10 years from retirement and are the first
to face a series of challenges that no other generation has faced before.
We have commissioned exclusive research to find out how over-50s are preparing
for retirement and how they can be helped. They have the time to save their
retirement but can also, without advice, wreck their retirement. The key to saving
your retirement is taking advice and we believe Independent Financial Advisers
have a vital role to play in helping people have the best retirement possible.
About Lord Hunt of Wirral
Lord Hunt of Wirral is a solicitor specialising in financial services and has been in parliament for 34 years - 21 years as a Member of the House of Commons and 13 years in the House of Lords. He is a former Cabinet Minister and was founder
Chairman of the Association of Independent Financial Advisers, as well as being President of the Chartered Insurance Institute. He specialises in Financial Services and led the legal teams on the ABI’s Raising Standards Initiative, the establishment of the Pensions Protection Investments Accreditation Board, the creation of AIFA, and the setting up of the Pensions Advisers Support System Ltd.
About MetLife
MetLife Inc is a worldwide brand with an international network reaching millions of customers and has a global reputation as a retirement specialist.
In the UK it works closely with Independent Financial Advisers and is a market leader in the fast-growing unit-linked guarantee market with its award-winning Retirement Portfolio. It offers income, deferred income and capital guarantees plus guaranteed death benefits across its product range.
With the recent acquisition of Alico, MetLife now has over 90 million customers worldwide in over 60 countries. MetLife is renowned for its stability, financial strength and security.
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10 Years to Save Your Retirement
Foreword by Lord Hunt of Wirral
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Introduction by Peter Carter
Head of Product Marketing, MetLife UK
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The pension facts about the 50-plus generation
The current state of pension saving among the over-50s
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Where did it all go wrong?
The challenges facing the over-50s
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Starting to save your retirement
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What has been going wrong?
The lost decade and the squeeze on annuities
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The recession has not helped
How have the over-50s fared in the recession and credit crunch?
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Making the numbers add up
Putting your retirement income together
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The choice is yours – with advice
Strategies to save your retirement
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Saving your retirement
Putting the strategies into practice
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10 years to save your retirement
Countdown checklist
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Take advice and save your retirement
Contents
The view from Independent Financial Advisers
and what you could be targeting
In the search for answers it is the over-50s generation who are leading the way for everyone else.
On the one hand they are benefiting from huge improvements in health and are living longer. The average man now lives to nearly 80 and the average woman to 82. Many want to work past traditional retirement ages and enlightened employers are enabling them to do so.
But at the same time, retirement saving is under more pressure than ever before. Company pensions are less generous than they used to be, while the value of the State Pension has fallen. On top of all that, the global financial crisis has hammered private pension saving, leaving the over-50s battling to find enough money to save their retirement. That is why MetLife’s campaign focusing on 10 Years to Save Your Retirement is so important. The research is worrying – 64% of working adults aged 50+ admit they do not believe or know whether they will achieve their retirement income target. Just 26% of over-50s say they are already prepared for retirement.
Your Retirement
Foreword by Lord Hunt of Wirral
Women are particularly vulnerable – the research shows that on average they have just half the pension savings of men, with the average 50+ woman looking at savings of £34,500 compared with the average man’s £68,800. Lower pay in general and taking time out to look after families takes its toll on women’s saving.
It is, however, too easy simply to give up. The best part of MetLife’s campaign is that it focuses on saving your retirement. There is a lot that people can do to ensure they achieve the retirement they deserve. Independent financial advice is crucial, but it is also essential that we all take on the challenge ourselves. If you want to keep on working you should be able to, and if you want to retire then you should be able to as well.
The current generation of over-50s can lead the way and show how a new retirement can be achieved. They may have a lot longer than 10 years to save their retirement, but they can do it.
Pensions and the future of retirement are certain to be one of
the biggest issues facing people today and in the future, with
the Government searching for solutions to the current problems.
By Peter Carter,
Head of Product Marketing, MetLife UK
You literally have to live with any mistakes you make for the rest of your life. It is not a decision you should take without expert advice which is why we believe Independent Financial Advisers are vital in planning for retirement. Savers need expert advice and guidance and pension companies need to work closely with Independent Financial Advisers to deliver solutions. Sadly the experience of the last two years shows that even those who have done all the right things have been left struggling. Plunging stock markets, rock-bottom interest rates and falling annuity rates have combined in a toxic mix which has threatened to wreck retirement for millions.
It is clear that we need new approaches to retirement planning and that financial services companies need to work harder with Independent Financial Advisers to provide retirement saving solutions which deliver what they promise. It is also clear though that retirement savers do not need more gloom and doom about wrecked pensions. They need solutions as well as expert and practical advice from Independent Financial Advisers in order to make the absolute best of their retirement savings.
Introduction
That is why MetLife has launched its 10 Years to Save Your Retirement campaign. We realise that retirement planning is not just about stock markets, pension funds and tax benefits. They are all crucial and savers need expert help to find what is right for them. But it is essentially about your retirement. We have commissioned exclusive research among 50-plus workers who are 10 years or more from retirement to find out how they are currently doing. It paints a picture that is in parts worrying but also in parts encouraging and will act as a road map for
Independent Financial Advisers. We appreciate the vital role advisers have to play and have researched their views thoroughly as well as part of our commitment to supporting advisers in developing their businesses. We do not have all the answers, but our campaign is aimed at helping people find the answers to their own retirement challenge. Independent Financial Advisers are ideally placed to help and whether you have 10 years or 20 years or even just five years, you can save your retirement.
‘
Retirement savers need
solutions and expect
advice to make the best of
their retirement savings.’
Planning for retirement is one of the biggest
financial challenges of your life and the one
you can least afford to get wrong.
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Nearly two thirds (64%) of working adults aged 50-plus either do not believe or do not know whether they will ever be financially prepared for retirement.Just 26% of working adults aged 50-plus believe they are financially prepared for retirement, while 17% believe they will be ready by retirement but have work to do.
The average amount working adults aged 50-plus have saved in their pension fund is £51,200. The average man has £68,800 while the average woman has £34,500 saved.
Their average retirement income target is £18,100, with men expecting £19,700 while women expect £16,400. Those aged between 50 and 54 expect £20,300. People who already have a higher household income of more than £70,000 a year want to retire with a pension income of £32,100.
Nearly six out of 10 (57%) say their pension planning has been set back by the events of the past two years. About 29% say their planning has been set back a lot.
Those who are 60-plus have suffered the most – about 62% of them say their planning has been hit.
That figure rises to 67% among those with household incomes of between £50,000 and £70,000. Those with higher expectations of retirement income clearly have more to lose. Nearly one in five (18%) say they have made changes to their retirement planning strategies. However despite the risks of the events of the past two years, 61% of those surveyed say they have not taken any action to protect their pension funds or to adapt their retirement planning.
the 50-plus generation
MetLife’s exclusive research among a representative
sample of UK working adults aged 50-plus reveals
the current state of pension saving.
Nearly two thirds of them (65%) expect to be able to retire from full-time employment. Just 6% want to carry on working full time while 16% believe they will have to carry on working full time or part time.
They do not expect the State to provide. On average they believe the State Pension Age for men should be at 64.3 and at 62.8 for women – not quite at the level it actually will be by 6 April 2020 when retirement ages will be equalised at 65 for both sexes. Just 18% believe the male retirement age should be increased, while 54% believe the retirement age for women should rise. Falling annuity rates have hit pension incomes – in order to generate an income of £10,000 from conventional annuities a 65-year-old man needs a pension fund of £235,000. For £50,000 he needs £1.15 million (Limited Price Index annuity, guaranteed for 5 years).
Only 4% of working adults aged 50-plus have funds of more than £200,000. Just 1% have between £500,000 and £750,000 saved. The more wealthy people are, the higher they believe the State Pension Age should be. A third of those with household incomes of more than £70,000 believe the male retirement age should rise while 58% believe the retirement age for women should rise.
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So with 10 years to save their
retirement, what can they do
and how can Independent
Financial Advisers help?
• Company pension schemes are
changing, with employers retreating from generous final salary pensions offering inflation-proofed retirement incomes linked to final earnings. The new norm is defined contribution schemes which rely on stock market performance in order to build pension funds. Millions are being left to make life-changing decisions without independent advice.
• Stock markets have not delivered
– total returns on the FTSE-100 over the past 101/
2 years have been around 0.5% annually. That means £200,000 invested directly in the index at the end of 1999 would be worth just £212,000 at the end of May 2010. Investors in defined contribution schemes lost 3% a year, every year between 1999 and 2009.
• The over-50s are the crucial
generation partly because they are the first to face all these challenges but, most importantly, because they do literally have 10 years to save their retirement.
all go wrong?
• Pension payouts are being squeezed. The rates currently paid on conventional annuities are at their lowest level since 1994, according to Investment Life & Pensions Moneyfacts. Rates for men have dropped by 46% and rates for women have fallen by 42% in the past 15 years. In the past year rates have dropped by 6.3% for men and 5.6% for women.
• The State Pension has fallen
dramatically in value. Currently it is worth just 16% of average earnings compared to 26% in 1979 and 20% in 1987. The Coalition Government’s decision to restore the link between the State Pension and average earnings from April 2011 is a welcome move, but will not on its own transform retirement income.
• We are living longer. The average
65-year-old man can expect to live to 82 while women can expect to live to 85. Retirement income has to last longer than it has in the past.
The current generation of over-50s are the first to face
a uniquely tough combination of circumstances which
are putting their chances of a comfortable retirement
at serious risk.
‘The State Pension has
fallen dramatically.’
The role of Independent Financial Advisers is crucial in
retirement planning but they can help only if clients come
to see them when there is still time to take action.
Nationwide research among Independent Financial Advisers by George Street Research reveals that advisers are also concerned about the retirement planning of clients. The study demonstrates that clients who are 10 years from retirement are a major segment of advisers’ business. Customers who are facing retirement realise that they need expert help if they are to achieve their retirement income goals.
• Advisers believe that just 25% of their clients will achieve their target retirement income. • On average 35% of advisers’
pension and retirement planning clients first contact them when they are in the run-up to retirement.For advisers it is plain that retirement planning is a crucial part of their business and should be a focus.
The research shows just 32% •
of clients have considered the issues involved in protecting their pension fund from last-minute shocks when they first consult an adviser.
your retirement
• Worryingly more than half of clients (56%) are relying on strong stock market performance to deliver their target retirement income, despite recent experience of low returns from equities.
It is important before you speak to an •
Independent Financial Adviser to have a clear idea of what your pension fund will deliver when you translate it into income.
Currently a pension pot of £40,000 would buy a 65-year-old male a pension of approximately £2,643 a year on a level basis when he purchases an annuity. That is just slightly over 10% of current national average earnings, or £50.82 a week.
That income will lose value over time due to the effects of inflation. If you want a pension income which increases in line with inflation, the £40,000 would buy an annual income of just £1,695 which is equivalent to just £32.59 a week. If you have higher aspirations then you need a larger pension fund and Independent Financial Advisers can help achieve that. A 65-year-old man expecting an annuity income from his pension savings of between £10,000 and £50,000 a year should be looking at accumulating a pension fund of between £235,000 and £1.15 million.
‘Advisers believe that
just 25% of their clients
will achieve their target
retirement income.’
The ‘lost decade’ since 1999 has left many disappointed with their efforts to save for retirement, as the chart for the FTSE-100 below shows.
going wrong?
Stock market performance over the last 10 years tells
part of the story, although it is not the entire problem.
This has been compounded by the trend in annuity pricing which determines the level of income you receive when you turn your pension fund into an income.
Per centage Gr owth 99 00 01 02 03 04 05 06 07 08 09 10 150 140 130 120 110 100 90 80 70 60
FTSE 100 Total Return
Current historically low interest rates mean that the income a pension fund can buy has dropped as the charts below show.
For Independent Financial Advisers and their clients, the 10 years before retirement is an ideal point at which to review where they are, what they want to achieve and how they should set about achieving their target. That should include considering all retirement saving options where appropriate and not simply relying on strong stock market performance to deliver. Looking carefully at your accumulated pension fund over the final 10 years before retirement will have greatly beneficial effects on your retirement income. That should include assessing the key risks over the next 10 years and looking to minimise those, whilst also making some additional provision can make a world of difference and transform standards of living in retirement.
Impact on pension pots of drawing down
income from a pension fund during this period:
110 100 90 80 70 60 50 40 30 20 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 99 00 01 02 03 04 05 06 07 08 09 10ABI UK – Cautious Managed–Pen Max GAD Income
Fund V
alue (Thousand)
Years
£ income (max GAD)
Overlay of annuity buying power
at various points along the cycle:
150 140 130 120 110 100 90 80 70 60 9.50% 9.00% 8.50% 8.00% 7.50% 7.00% 6.50% 6.00% 99 00 01 02 03 04 05 06 07 08 09 10FTSE 100 Total Return Annuity Rate
FTSE 100 TR % Gr
owth
About 20% have moved into less •
risky investments such as cash ISAs or bonds already. The aim of such a strategy is to ensure that assets are protected and are less vulnerable to sudden shocks.
About 8% have moved their •
retirement planning focus on to property investment such as buy-to-let or by downsizing their existing family home to release capital. Again this moves away from the perceived risks of equity investment but is still subject to potential risks from the property market.
About 3%
• have taken out guarantees on the capital of their pension fund to prevent losses in the face of stock market volatility. Independent Financial Advisers have reacted to the stock market shocks by making use of new products to support clients.
The wealthier people are, the more •
likely they are to use guaranteed products. More than one in 10 (11%) of people with a higher household income of £70,000 or above have taken out guarantees on their pension funds. The more you have in savings the more crucial it is to protect your capital and income.
not helped
• About 5% have changed the asset allocation of their pension fund, either by reducing the reliance on equity investment or by moving into different stock markets. Few savers have the time or the expertise to do this themselves and need support from Independent Financial Advisers.
The reality however is that no matter what strategies savers adopt, they will be relying on one major source of income in retirement by the time they get to their 50s. MetLife’s research shows where the over-50s expect their money to come from.
32% expect to rely mainly on the •
State Pension.
• Up to 19% are relying on a personal pension as their main source of income.
• 13% are expecting a company defined contribution scheme to deliver. Just 10% have the relative security of •
a company defined benefit scheme which is designed to deliver two thirds of final earnings dependent on years of service.
Property and other assets will be the •
main source of income for 7% of working adults aged 50-plus.
About one in 20 are relying on stocks •
and shares plus savings to tide them over in retirement.
Self-Invested Personal Pensions will •
be used by just 1%.
About one in eight (13%) don’t know •
what their main source of income will be in retirement.
The over-50s have made adjustments to their retirement planning in reaction
to the events of the past two years, including the recession and ongoing
credit crunch. However the unprecedented events of the past two years have
been virtually impossible to avoid. What is clear though is that those who
have taken advice and action have fared better than those who have not.
For someone on £20,000 that means an income of £13,333 in retirement. The State will provide £9,290 of the total which means savers need to find £4,043 themselves. In order to generate that amount you need a pension fund of £61,185 to buy a pension income. If you want protection against inflation you need a fund of £95,402.
At different salary levels the amount is even greater. Someone earning £50,000 a year needs to generate a pension fund of between £332,767 and £506,928 in order to ensure they have a retirement income equivalent to two thirds of their final salary once State Pensions are taken into account.
The table below illustrates the pension fund needed in addition to State provision to guarantee an income of two thirds of final salary in retirement.
numbers add up
It is a sad fact, but many people haven’t saved enough for the
time when they stop working. Independent Financial Advisers
will say that you should be looking at trying to get as close
as possible to two thirds of your final salary when you retire.
Income 2/3 Income OAP S2P Total Income Shortfall Cost on Level
Basis Cost on LPI Basis £10,000 £6,667 £5,078 £1,982 £7,060 -£394 £0 £0 £20,000 £13,333 £5,078 £4,212 £9,290 £4,043 £61,185 £95,402 £30,000 £20,000 £5,078 £5,212 £10,290 £9,710 £146,607 £223,060 £40,000 £26,667 £5,078 £6,212 £11,290 £15,376 £232,168 £353,238 £50,000 £33,333 £5,078 £6,216 £11,294 £22,039 £332,767 £506,298
Few individuals will be aware of all the potential solutions
available for retirement planning, which is why Independent
Financial Advisers are crucial in the planning process.
In the 10 years to retirement the key is to start focusing on the issues of potential investment shocks. You should try to protect your funds while also trying to make them grow as much as possible. It is a deceptively simple statement, but in order to make it reality consumers need help from advisers. Of course the lost decade has not helped. But it has led to innovation across the financial services industry and the introduction of a range of new solutions to help reach your target retirement income.
The products on offer range from target date funds to life styling and unit-linked guarantees. There is however no magic bullet or one solution to fit all and the solutions come with advantages and disadvantages. Independent Financial Advisers will provide advice on which solution fits you best. You should ensure that you are comfortable with the strategy that is chosen as it is your retirement.
Life styling
Life styling uses pre-programmed computer-based switches from higher risk assets to lower-risk assets over a defined period. The idea is that by the time a client comes to retire, 100% of their assets will be in low-risk funds, and in theory, safe. You do not have to put your faith in a computer – some investment managers will offer a service where they actively manage your funds, but that will cost more.
– with advice
Advantages
When you retire, all your funds are likely •
to be in low-risk assets and you are safe from last-minute stock market crashes delaying your retirement plans.
Disadvantages
• Sticking rigidly to switching all your money into low-risk assets means you can miss out on stock market gains which could otherwise be achieved. Computer-driven switches could happen when share prices are low, so that you lock in a loss.
You might still want to be invested in the stock •
market when you are retired and be stuck with a low-risk portfolio when you still have 20 to 30 years to live. Once retired you might want to invest in higher-risk assets.
Target date funds
Target funds are invested with a specific date in mind and are often named after the year in which they are due to mature, such as 2015 or 2020. The idea is for investment managers to arrange funds so that the value is maximised at the target maturity date which could coincide with retirement. Funds will be in safe asset classes and the investor knows how much they have to provide an income for themselves.
Structured products
Structured products generally offer a pre-determined level of growth or income depending on the performance of a particular share index or indices. They offer more certainty about the likely outcome of an investment. Typically they would promise your original capital back at the end of the investment term if the index in which it was invested had not fallen below a certain level, and would offer growth in line with the index if it rose.
Investors know the risks on the downside and are only worried about the scale of the returns on the upside. Some even give more certainty on returns.
Advantages
You know what the returns could be and •
have a guarantee on preventing or limiting losses, plus some guarantee on income or capital growth.
Disadvantages
The charges on these types of product are •
opaque, so it is difficult to see the actual cost of the investment.
There are risks if the counterparty guaranteeing •
the returns goes bust, as was demonstrated by the collapse of Lehman Brothers.
The returns which are specified on the indices •
are generally only the capital return of the index. You do not earn dividends, which can amount to a 15 to 20% return over the five-year terms which most of these products are written. It’s difficult to assess the value for money •
of the returns being offered by the product. You simply have to decide whether the returns look attractive to you.
Advantages
You move out of risky equities into safer •
assets such as cash or fixed interest as retirement looms.
They are more flexible than life styling as •
the switches do not have to be at certain fixed points prior to retirement. That should mean a better final result.
Disadvantages
The fund can lose out on good stock •
market performance before the target date, which means there’s a price for safety. They can still be risky depending on the •
manager. If they have a bullish view on equities they might stay invested closer to the target date and still be vulnerable to last minute shocks. The funds do not guarantee the highest value on the target date – they just say they will try to achieve the highest value.
High-risk asset allocations
It sounds counter-intuitive, but a high-risk asset allocation could be worth trying if you are not relying on the fund to provide a major part of your retirement income. Making large gains by speculative investments is possible, but likely to be unwise for those who are relying on their fund for the majority of their retirement income.
Advantages
Can make large gains in a short time, and if you •
are disciplined about taking gains can provide a substantial boost to retirement income.
Disadvantages
If you are relying on the fund for most of your •
retirement income, the downside risks are too great. High risk can mean high rewards but also high losses. If it goes wrong, you lose income for ever.
Advantages
You are not at risk from stock market volatility. •
You can mirror trends in annuity rates with •
the appropriate fixed interest assets, so that as annuity rates fall the value of the fund rises to compensate, and vice versa.
Disadvantages
You miss out on stock market gains in the run-up •
to retirement.
Low-risk assets are not always as low-risk as •
they seem. Property has had a recent downturn and fixed interest assets can change in value considerably in response to changes in interest rates. Even returns from cash can vary enormously, as base rates being cut to an historically low level of 0.5% shows. Nobody predicted that.
Low-risk asset allocations
Moving your money into low-risk assets such as cash or fixed-interest investments in the years approaching retirement will limit swings in the value of the pension fund over time and provide a more certain outcome.
Advantages
You know in advance what your capital •
or income will be over the period of your investment and have certainty on income and capital.
You can continue to invest in higher-risk assets. •
You can benefit from future market growth •
whilst having downside protection. Gains are ‘locked in’ periodically, so that •
once made they cannot be taken away. This applies to both capital and income. You will have access to your fund at all times, •
so if your circumstances change you are able to change your investment approach.
Disadvantages
There is a specific charge for the guarantee •
which you take out, which will reduce the performance of your investment.
Unit-Linked Guarantees
Unit-linked guarantees offer guarantees on income or capital which are backed by the providers, who are insurance companies. You invest in unit-linked funds which will have money in a mixture of equities and fixed income assets.
You choose the type of guarantee you want – on either capital over a fixed term or an income for the rest of your life. There are often guaranteed death benefits. Providers use a hedge programme to buy assets which will match changes in the clients’ underlying investments so there are always sufficient assets whatever market conditions to provide investors with their capital or income.
Take advice – it could
be the best value decision
you could make
• The essential thing for everyone
planning for retirement is to take advice. Most investors have neither the time, skills nor the inclination to make the right decisions about their investment choices as they approach the time they come to stop working. The best way for these people to ensure the best outcome is to take advice, then make a plan which is implemented and regularly monitored along the way.
• Those who choose to take advice
are the ones who are most likely to either achieve their goals or at least to get as close to them as possible.
Saving your retirement
The focus is on 10 years to save your retirement
but if you have more time, so much the better.
However if you have less time, there are still
things which are sensible to do.
Save more –
and not just into pensions
• Even if you only have 10 years to go
to retirement, saving more can still be a sensible thing to do. You may decide not to save in a pension fund, although remember, tax relief at the highest rate is available. The effect of tax relief is shown in the table below. It makes sense to take advantage of tax benefits and the higher your marginal rate the more you gain.
Contribution Tax relief rate Amount saved
in one year Amount saved in 10 years £100 per month 0% £1,200 £12,000 £100 per month 20% £1,500 £15,000 £100 per month 40% £2,000 £20,000 £100 per month 50% £2,400 £24,000
Saving £100 per month into an Individual Savings Account would grow almost tax-free and the proceeds would be tax-free. Savings in a pension will also grow almost tax-free, although the income from them is taxable. This tax could be at a lower rate than that given at outset, as by the time savers retire they may move from paying 40% or 50% income tax to 20%, so making a real saving.
Decide an investment
strategy with your adviser
•
Whether an investor already has an investment fund or they are saving to accumulate one, there must be an investment strategy with which the investor is happy and which they understand.
•
Investors who know where they are investing and why, are usually the ones that get the outcomes they have expected. Changing investment strategies along the way, or alternatively not having one at all, means that investors won’t know what to expect and will often be disappointed.
Guarantee your capital
or income
•
Adding well-managed guarantees to a portfolio increases certainty on income or capital and means that investors can take risks with other elements of their portfolio. •
If this approach is to be taken,
make sure the investor understands the benefits and the costs associated with a guarantee. Many investors of moderate means will be happy to pay for the security which the guarantee can bring. Others who have large amounts of assets may feel that a guarantee is less important.
The 10 years to retirement are crucial but it is never too
early – or too late – to improve your chances in retirement.
countdown checklist
The message with retirement saving is simple – the earlier you start saving for retirement, the easier it will be to achieve your target income. However savers have to be realistic and to understand what they are saving for and how they are aiming to achieve their goal.
At 10 years out advisers and clients should be
focusing on:
3
Work out a realistic target for how much you will need to live on in retirement. Take into account life style changes but be realistic. Once you are no longer working you will not need to pay for travel to and from work, but you will still want to travel. Will your mortgage be paid off by the time you retire? If it will be then you can deduct your monthly mortgage bill from your outgoings. However you may also want to make allowances for extras such as increased utility bills from being at home more often and you may also want to budget for more frequent holidays. Work out a plan with your adviser.3
You will need to estimate how much pension you can expect from past and present pension providers and employers. If you have changed employers you may have a range of company pension funds and they may vary between defined contribution and defined benefit pension schemes. Contact pension providers and ask them for estimates and up-to-date pension statements. It may be beneficial to consolidate pension funds or it may be better to leave them as they are. Speak to an Independent Financial Adviser.3
You will need a forecast of your State Pension which you can get through the Pensions Service. Not everyone will be entitled to the full State Pension, so it is worthwhile knowing roughly how much you will be entitled to.3
Add all your pension income together to see how it measures up against your target retirement income. You may be on target but you may have a shortfall. If you do, you need to decide whether you can save more for retirement. You have 10 years to save your retirement. Extra saving can help bridge any gaps, but if you expect to have a low income in retirement then saving may cost you benefits.3
Take financial advice on where to put your savings. Pension funds are generally a good place to save but they are not always the best option. An Independent Financial Adviser can check how well – or badly – your pensions and savings are performing. If you have contracted out of the State Second Pension you should ask your adviser if that is still the best option.At five years out advisers and clients should
be focusing on:
3
Consider moving stock market investments – including your pension fund – into safer investments to avoid potential stock market shocks. A 20% drop in the stock market now would be disastrous.3
Consider taking out guaranteed products such as unit-linked guarantees or structured products. Decide whether you want to guarantee income or capital. Bear in mind the potential costs of taking out guarantees.3
Ask for another State Pension forecast and consider paying voluntary National Insurance contributions to ensure that you will receive the full State Pension.3
Start paying off debts if possible – that should include mortgages as well as unsecured debts such as credit cards or loans.3
Ensure you have a will in place if you don’t already. Making a will should identify whether or not you have to think about Inheritance Tax. If you face a potential Inheritance Tax bill, then speak to an Independent Financial Adviser about ways to minimise Inheritance Tax.3
Further increase saving for your retirement – as long as it doesn’t impact on Means Tested Benefits.3
Ensure you have tracked down any old pensions that have been preserved.Finally when you are just six months
from retirement:
3
Contact pension providers to find out how your pension will be paid – and how much it is.3
Make an appointment with an IndependentFinancial Adviser to ensure you get the most income out of your pension funds. Tell them if you smoke or have any medical conditions, as this can improve the annuity rate you are paid..
3
Consider alternative guaranteed income products if annuities do not appeal to you.3
Inform your local tax office that you will be retiring.3
If you are deferring taking your State Pension,let the Pensions Service know.
3
If you plan to continue working, ensure your employer knows as you will no longer need to pay National Insurance contributions.save your retirement
The word ‘pensions’ is now almost always accompanied by
the word ‘crisis’ with analysts, financial commentators and
even pension providers, competing to paint as bleak a picture
as possible of the prospects for retirement in the UK.
Savers are battered daily with grim predictions that company pension schemes will close; that the State Pension will be insufficient; that private pensions will pay low returns; that annuity rates are at all-time lows; and that few people will be able to retire.
All of that is true to some extent. It would be wrong to pretend that everything is fine with the UK pensions system. There are serious issues to be tackled.
However despite the gloom about the UK pensions system as a whole, the focus should be on individual pensioners. Although the situation is difficult, there are choices which investors can make to give themselves a better chance of reaching their retirement goals than if they simply put their heads in the sand.
Part of the answer may be saving more in the years that remain, while other answers include changing an investment strategy or looking to add a guarantee on capital or income. Focusing on 10 years to save your retirement provides a call to action for Independent Financial Advisers and clients. In reality whether savers
are 10 years or five years from
retirement, there are still strategies that can help improve retirement income. MetLife’s research shows that there is a massive potential market for advisers to help.
Up to two thirds of working adults aged 50-plus will retire entirely and at the traditional retirement ages despite all the grim predictions of working till you drop. All these people will benefit from expert advice on their retirement plans. Towers Watson estimates the at-retirement market will double by 2013 compared with 2007. In 2007 about 460,000 at-retirement products were sold, which will grow to almost one million by 2013. Around £13.6 billion of funds matured in 2007 and that will grow to £32 billion by 2012. By 2017 Towers Watson estimate around £50 billion of funds will mature. Advisers say 35% of clients they see for the first time are 10 years from retirement and looking for advice on how to build or maintain their retirement income. Just a third of clients have considered the issues behind protecting their pension funds and are clearly in need of expert advice.
MetLife’s research makes it clear that nearly a third of those who are 10 years from retirement are taking action and have looked at the issues. They have investments in personal pensions, SIPPs, property, stock market investments and savings which would benefit from financial advice. Even the 23% who are relying on corporate pensions should consider taking advice on saving their retirement.
The basic point is that for many, there is no need to panic about the years that lie ahead. Start thinking now about changes that can be made, take advice from a qualified Independent Financial Adviser. Get a plan in place which you stick to and monitor along the way with your adviser.
Using these few simple guidelines it is possible for most investors to make a better future for themselves, even if they do have just 10 years to save their retirement.
