Transitioning into retirement so it’s not a cliff-edge

The traditional approach to retirement has changed, dramatically so, in recent years. In fact we rarely talk about overnight retirement with clients these days instead talk about the day work becomes a choice.

What used to be viewed as a cliff-edge has, for many retirees, become more of a gradual transition into a different lifestyle.

Where retirement used to involve a complete break from work – one-day clocking in at 9 am, the next with no employment commitments to fulfil – it’s now increasingly common for retirees to work part-time, or volunteer in some capacity.

Many of our clients at Juniper Wealth go on to take up positions as Charity Trustees or fulfil voluntary roles in organisations they are passionate about such as Sport Clubs or Community Projects.

New research from Fidelity International has found that more than half of UK adults plan to work at least part-time during their retirement.

The retirement trends research found 52% of people intend to continue working in later life. This still represents ‘retirement’, as on average people expect to step back from their primary job at 66 years old.

However, a significant 45% of those surveyed expect to continue working in some capacity well into their 70s, and almost one in ten expect to be still working in their 80s or beyond.

An expectation of having or wanting to work for later could be linked to improvements in longevity.

Average life expectancy at birth in the UK is now 79.3 year for men and 82.9 years for women, with a child born today expected to live for a decade longer than a child born in the 1950s.

Because we’re living longer, on average, it’s natural to expect to work longer. Alternatively, the amount saved during our working lives would need to be significantly higher, to last for longer in later life.

Already, this improved life expectancy is feeding through into different lifetime working patterns. The latest official figures show the proportion of over 70s in full-time or part-time employment has doubled in the past decade.

“With 60 now widely seen as ‘the new 40’, today’s so-called retirees are healthier, living longer, and retiring at different ages. So, it is unsurprising that people have no desire to retire and are defying traditional expectations.

“The economic power of those who were once considered ‘past it’ can now be felt everywhere. This will transform the jobs market as more people work into their late 60s or even early 70s and they will have a growing influence on consumer spending as pension reforms allow them to cash in their lifetime savings and spend the money as they wish.”

Maike Currie, director for workplace investing at Fidelity International, said:

The research also found that higher-income households are more likely than lower-income families to plan to work into their retirements. The financial choice could, therefore, play a role in this decision.

58% of people from higher-income households had this intention, compared with 50% from lower-income families.

Higher earners do however expect to step down from their primary career an average of two years earlier. Households with income exceeding £50,000 a year expect to retire at age 65 on average, while families with income of less than £50,000 plan to retire at age 67 on average.

What this research shows is that, for many of us, retirement is no longer the one-off event it used to be. Instead, retirement increasingly involves a gradual transition from work to leisure.

As well as financial, there are many benefits to working in retirement. The sense of purpose and identity that comes with continuing to work can have positive mental and physical health outcomes when compared with retiring fully from all work.

What matters is having a clear plan for retirement and having choices when it comes to continuing work.

Sometimes, it’s not possible to work in our 60s, 70s or 80s, due to poor health (for ourselves or a loved one who needs our care), or the lack of suitable employment.

To create these choices, having a fully-funded retirement plan, that can kick in should work become impossible, is a must-have. Working with a financial planner to identify how much you need to save and how to best structure your retirement wealth is a valuable step.

Jon DoyleTransitioning into retirement so it’s not a cliff-edge
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24 hours to lose 22 years’ worth of pensions savings

Years of hard earned pension, investment and ISA savings could be lost to scammers in the space of 24 hours.

According to a new report by the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR), victims of scams can lose 22 years’ worth of their savings in a day.

The analysis, which forms part of the regulators’ joint ScamSmart campaign, found it could take a pension saver 22 years to build up a pension pot of £82,000. This is the average size pension pot lost by victims of scams last year.

Despite the length of time it takes to accumulate pension savings, it can all be lost to scammers within the space of 24 hours; the time it takes for 24% of those surveyed to make up their minds on a pension offer.

Overconfidence was highlighted as one of the factors leading to missed warning signs of a pension scam.

The research found that nearly two-thirds of pension savers are confident to decide on their pension, but the same proportion would trust someone offering pensions advice out of the blue.

An unsolicited approach to talk about your pensions is one of the biggest red flags of a scam.

Another interesting finding within the research was a correlation between education and falling victim to a scam. The more highly educated the person, the more likely they were to become a victim.

University educated graduates were 40% more likely to accept the offer of a free pension free from a company they haven’t dealt with before. 21% of more educated savers were expected to take up an offer of early access to their pension pot.

Free pension reviews and the offer of early access to a pension pot are further red flags suggesting a pension scam.

The FCA and TPR pointed out in their report that pension scams can have a devastating impact on their victims.

“We know many people have big plans for their retirement, whether it’s seeing new places, learning new skills or helping their families out financially. Pension scammers destroy those dreams, often forever. So be ScamSmart. Reject unsolicited approaches offering ‘help’ with your pension and get advice from an FCA authorised firm before making big changes to your pension fund. Make sure your lifetime savings stay yours.”

Mark Steward, Executive Director of Enforcement and Market Oversight, FCA, said:

The consequences of falling for a pension scam can include being left with limited income in retirement, and little or no opportunity to work and save to rebuild pension pots.

For this reason, the regulators want pension savers to be aware of the warning signs of a scam and check who they are dealing with before making important decisions about their pension savings.

“Pension scammers ruin lives, stealing away decades’ of savings with professional-looking websites, ‘expert’ advice and an easy manner making it tough to spot the fraud. But once you sign on the dotted line, often there’s no second chance. Scams can happen to anyone, so before making any decision about your pension, take your time, be ScamSmart and always check who you are dealing with.”

Nicola Parish, Executive Director of Frontline Regulation, TPR, said:

The FCA and TPR recommend four easy steps that pension savers can take to protect themselves from the scammers.

  1. Reject unexpected pension offers whether made online, on social media or over the phone.
  2. Check who you’re dealing with before changing your pension arrangements – check the FCA Register or call the FCA helpline on 0800 111 6768 to see if the FCA authorises the firm you are dealing with.
  3. Don’t be rushed or pressured into making any decision about your pension.
  4. Consider getting impartial information and advice.

“Scammers employ clever techniques, such as seeking to establish ‘social similarity’ by faking empathy and a friendly rapport with their victims. They can win your trust in a short space of time and by engaging with them you leave yourself vulnerable to losing a lot of money very quickly. People need to know how to spot the signs of a scam so they don’t fall for psychological tricks.”

Honey Langcaster-James, psychologist, added:

If in doubt, or if an offer seems too good to be true, proceed with caution and get a second opinion before making a lasting decision about your pension.

There’s never a need to rush into decision making when it comes to such a valuable financial asset. Don’t fall victim to pension scams and risk losing a lifetime worth of savings in a short space of time.

Jon Doyle24 hours to lose 22 years’ worth of pensions savings
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Don’t make financial decisions when you’re hungry

I think we all know by now what tends to happen when we visit the supermarket on an empty stomach or have felt the effects of a ‘hangry’ partner, child or friend?

If you are browsing the supermarket aisles when hungry, it can result in a trolley or basket full of less than sensible purchases.

But what happens when the same hungry state is applied during times of making financial decisions?

Thankfully, scientists have been pondering this question, and they have come up with an answer.

The new study from the University of Dundee, published in the journal Psychonomic Bulletin & Review, concluded that making any decision while hungry can result in making poorer long-term choices.

“This work fits into a larger effort in psychology and behavioural economics to map the factors that influence our decision making. This potentially empowers people as they may foresee and mitigate the effects of hunger, for example, that might bias their decision making away from their long term goals.”

Benjamin Vincent, Author of the study

The study considers a heuristic known as ‘delay discounting’.

This says that we tend to prefer smaller rewards today instead of more substantial rewards tomorrow.

You might have heard of the famous marshmallow test, where children who could resist the temptation of eating one marshmallow immediately, to receive two marshmallows as a reward for their patience, tended to have better life outcomes.

If you haven’t heard of the Marshmallow Test I can highly recommend the book.

Patience is, indeed, a virtue.

From a financial perspective, delay discounting tells us that we often prefer to receive £100 now instead of getting £200 later.

But back to feeling hungry and its impact on our decision making.

The researchers asked study participants whether they would prefer food, money or music now, or a greater amount of the same in the future.

One group of participants were hungry after fasting for 10 hours. The other study group were well fed.

Unsurprisingly, feeling hungry made people less likely to want to wait for more food in the future; they wanted it now.

It’s the translation of this result when it comes to money that we found especially interesting.

Hungry participants were prepared to wait 40 days to receive double the money, compared to a 90 day wait for those who had recently eaten.

The researchers concluded there was a carryover effect of hunger on money, which was moderately strong.

Being hungry focuses our minds on short-term rewards, across multiple areas, including food and money.

What this means for making financial decisions is simple; eat first!

If you’re going to choose a mortgage, make decisions about your retirement income, or change the allocation of your investment portfolio, doing so on an empty stomach could result in making poorer long-term choices.

Jon DoyleDon’t make financial decisions when you’re hungry
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The World In A Week 39 – Is This The Beginning Of The End?

The election machines for the main political parties rolled into action last week, and with just 31 days until the general election, politicians are keen to get their messages across, while taking carefully worded pot-shots at the opposition.

This meant that Parliament was officially dissolved on Tuesday so electioneering could commence the following day.  However, the relief from Brexit and UK politics will be short-lived, as whatever the outcome of the general election, uncertainty will continue to prevail for the UK.

According to YouGov’s political tracker, the Conservatives lead in the poll with 39%, while Labour sits second with 26%, up from 21% at the beginning of the month.  It should come as no surprise, that with 59% of the poll, the most important issue to voters is Britain leaving the EU.

If the polls are correct, which based on recent experience is wildly optimistic, then we may see a Conservative majority.  That could mean Brexit takes place on or before 31st January 2020.  The uncertainty here is the original transition period is due to finish at the end of 2020, which does not give much time to complete a comprehensive trade deal with the EU.  Anything other than a Conservative majority would bring the uncertainty around Brexit front and centre.

Trade is also in the headlines across the Atlantic, with both the US and China having confirmed that if a phase one trade agreement happens, then it would include some reductions in tariffs.  Whether this is a reduction in the actual tax rate or in the number of goods being taxed, was unclear.  However, the time being taken around the negotiations does suggest a significant deal is in the pipeline.

It would seem the timing is equally convenient for both Presidents; one needs a good story to tweet about as his impeachment gains momentum, while the other needs to replenish his countries pork reserves.  According to UBS China’s pork prices have soared 100% over the past 12 months, as the country has had to cull its pigs in the face of African Swine Fever.  Pork is the most consumed meat in China and its importance cannot be understated.

Jon DoyleThe World In A Week 39 – Is This The Beginning Of The End?
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How much is enough to make work a choice?

What’s your retirement savings target? How much pension will you need? How much will you need to have saved, invested and put aside for your financial future?

Don’t worry if you can’t answer these questions quickly. A considerable number of people don’t have a ready answer to this critical question.

According to new research, around 40 million UK adults could be taking their chances when it comes to retirement, admitting they either have not or did not set a savings target.

The research, as part of Sanlam’s “What’s Your Number?” report, is highlighting how a lack of basic knowledge about retirement planning could be damaging our ability to reach future financial goals.

Within the report, it found that more than half of UK adults don’t think they can save enough money to retire when they want to finish work.

Only 12% of under-55s have a specific target for the size of their pension pot.

This lack of knowledge around retirement planning is brought into sharp focus by the fact that four times as many people know their lottery numbers off by heart.

It’s the 45-54 age group who are mainly at risk from this lack of explicit knowledge and goals. Only 18% in this age group, which should be saving at a significant rate, have set retirement goals.

Applied across the UK population, that means that 8.2 million adults are heading into retirement without a clear set of goals. They could be failing to make the most of some of their most lucrative years of career earnings, undermining the opportunity for a financially secure retirement.

Within the research, there’s a significant gender gap. Women are particularly exposed to a lack of precise retirement planning.

Only 18% of women have set a financial target for retirement, compared to 29% of men. With women already facing a gender pensions gap, this lack of clear retirement objectives could be especially harmful.

Knowing your number and, more importantly, understanding what it means for your current and future lifestyle is really important.

The gap between what people think they need and what they actually require in later life is huge, and sometimes life-changing.

When taking clients through this it becomes very clear. We paint it out in pictures and it very quickly highlights the important issues. Blue and Green is good, red is bad.

Despite years of industry effort to turn the tide, engagement with longer term savings, as highlighted in this report, is shockingly low.

Jon Doyle, Financial Planner, Juniper Wealth Management

The research discovered that the main aims for retirement were not having to worry about money, maintaining a current living standard, and being free from debt.

Other retirement planning goals include having a regular income and repaying the mortgage before retiring.

So why are we failing to plan for retirement? Around two-fifths of UK adults don’t see setting targets as being essential for their long-term financial planning, which could explain the complacency.

This report suggests that we are about to see a significant number of people approaching retirement who will be ill-prepared and severely disappointed when faced with their retirement reality.

By taking some very simple steps, setting clear financial goals, and identifying a clear path to get there, catastrophe can be avoided.

When setting goals people can often get stuck on not having big, inspiring or ambitious goals but I think it can be much simpler than this.

Sometimes that goal can be a simple as knowing what your don’t want to have happen.

Jon Doyle, Financial Planner

It’s hard to understate the importance of having clear goals for retirement savings.

Knowing how much you should be saving each month, and your clear financial goals to maintain the desired lifestyle in later life, are critical to a successful retirement.

To find out more about our Financial Planning process do get in contact or you can book in an initial meeting at our offices or over video conference completely at our expense here

Jon DoyleHow much is enough to make work a choice?
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The World In A Week 38 – The New Boss, Same As The Old Boss?

It was a relatively sedate week in financial markets, as Sterling strengthened against most major global currencies. Equities were up slightly in GBP terms, while Fixed Income also rose by +0.25% in GBP hedged terms. Brexit related metrics were largely unchanged, as markets await the results of the forthcoming festive election. Global bonds maintained their gains vs Sterling bonds, as did domestically-focused UK equities vs their more international peers. The Dollar has begun to weaken against its main trading partners, which has given a nice boost to our local currency emerging market debt holdings.

One of the major developments in the world of finance was the changing of the guard at the European Central Bank. Christine Lagarde took over the position of President of the ECB from Mario Draghi. She begins her tenure at a time when storm clouds gather over the Eurozone economy and the monetary policy tools at her disposal are less and less effective at boosting economic growth. In that sense, Mr Draghi may have picked an opportune time to depart, as much of Madame Lagarde’s political capital will likely be expended in trying to convince the creditor nations of the Eurozone (namely Germany) to enact a fiscal stimulus to pick up the reins from monetary policy. This is not a task many would envy…

Jon DoyleThe World In A Week 38 – The New Boss, Same As The Old Boss?
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Little known benefit available for Grandparents who help with Childcare whilst save families £22bn a year.

Grandparents play a significant emotional and financial role in the lives of their children and grandchildren

According to new research from insurer SunLife, four in five grandparents are providing some form of childcare for their grandchildren.

As a result, grandparents save a collective £22bn in childcare costs for UK families.

The poll of 2,000 grandparents found that 85% provide some form of support.

45% of grandparents provide babysitting for their grandchildren, and 34% provide childcare during the school holidays.

A quarter of grandparents provide childcare during the working week, with one in five taking care of the school run.

The research also found that more than 29% of grandparents are relied upon to look after grandchildren when they are sick, while one in six grandparents provide a taxi service, taking their grandkids to after school clubs, activities and hobbies.

What would all of this childcare provided by grandparents cost if the role was paid?

With an average of eight hours a week devoted by grandparents towards childcare, this would equate to an annual salary of £4,027.

For grandparents who provide childcare for five days a week, eight hours a day, it would equate to an annual salary of £22,651.

With around 14 million grandparents in the UK and 5 million of these providing regular childcare, it means a cost-saving to families of approximately £22.5 billion each year in childcare costs.

“Grandparents are often the unsung heroes of the family, spending hours helping with childcare and offering practical and emotional support, not to mention saving parents thousands of pounds in childcare costs. The research suggests most are happy with the amount of support they give, getting to spend time with their beloved grandchildren and staying fitter and healthier in the process!”

Ian Atkinson, marketing director at SunLife

It’s worth noting that grandparents who provide regular care and support for their grandchildren could be entitled to receive childcare credit.

Childcare credit is a National Insurance credit introduced in April 2011, available if you’re a grandparent or another family member who cares for a child under 12, usually while their parent or the main carer is working.

Specified Adult Childcare credits work by transferring the National Insurance credit attached to Child Benefit from the Child Benefit recipient to the family member who is providing care to the child.

Credit is available for each Child Benefit recipient, rather than each child, so care must be taken to decide who receives any credit.

Once in receipt of this credit, a grandparent can receive a Class 3 National Insurance credit for each week or part week they care for the child. These Class 3 National Insurance credits can help build entitlement to the State Pension.

The credits can also help to stop gaps in your National Insurance record.

Jon DoyleLittle known benefit available for Grandparents who help with Childcare whilst save families £22bn a year.
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The World In A Week 37 – On, and On and On…

Brexit shenanigans dominated the headlines last week as the UK’s departure from the EU drags on, and on, and on. While Prime Minister Johnson eventually reached a majority agreement, it failed to go to a vote in the House of Commons over the weekend as MPs deemed the narrow window of, 3 days, too narrow. The EU will now decide on allowing a further delay beyond the deadline of 31st October. In the meantime, Johnson has called for elections to be held on 12th December, the last day that community halls and other social spaces are available before the festive period; a two-thirds majority would be required for the vote to go ahead.

Central banks held little surprises; in his last appearance as Chair of the ECB, Mario Draghi remained dovish in his final address. While Draghi will formally hand over the reins to his successor this week, we look back to his famous speech in 2012, where he promised to do “whatever it takes” to save the Euro and he will leave the ECB having achieved this. In the week ahead, the US Federal Reserve meets on 29th, consensus is that there will be a further cut to interest rates.

Economic data last week was mixed; the Eurozone edged marginally higher from a reading of 50.1 in September to 50.2 in October, hanging on the expansionary territory, however, underlying data showed that France had done better than expected while Germany continues to slow. In the US, PMI preliminary data moved up from 51 to 51.2, despite disappointing durable goods orders.

Results season in the US was more positive; with a third of companies’ data now available, over 80% surprised to the upside pushing growth rates cautiously in to positive territory. It was a similar story in Europe, with more positive surprises than negative news, however, growth struggled and was marginally negative.

Jon DoyleThe World In A Week 37 – On, and On and On…
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Why underestimating life expectancy in retirement is a costly mistake

One of the biggest challenges associated with financial planing in retirement is accurately forecasting life expectancy.

Using a reasonable estimate for life expectancy is important when calculating how much you need saved in pensions, ISAs and other savings and investments, in addition to the State Pension, to fund the lifestyle you want to live.

If you underestimate your life expectancy, you risk failing to save enough for retirement or spending your savings too quickly and running out of money in later life.

Overestimate your life expectancy, and there is a genuine risk of saving too much, working longer than you had to or spending too little in your golden years and failing to live the life you want.

It’s the equivalent of setting off on an adventurous road trip without knowing if you have enough fuel to get to your destination. Except there are no petrol stations, there is no can of fuel in the boot and nobody can give you a lift.

According to some new research, we have a habit of underestimating our life expectancy. As a result, we could face an average £80,000 shortfall in our retirement savings.

Here’s how we arrived at these numbers:

The research from insurer Scottish Widows found that one in five people are using the age to which their grandparents lived as a yardstick for their life expectancy.

Referring to the lifespan of a previous generation is an flawed methodology when longevity improvements mean we can expect to live, on average, 11 years longer today.

The typical life expectancy of UK adults saving for retirement is 87 years old.

However, the average adult is planning with a life expectancy of just 82, after retiring at 65.

These expectations mean a typical retirement is 30% longer than expected, at 22 rather than 17 years long. Those five extra years of retirement on average require an additional £80,000 in savings.

Despite this likely shortfall, the research also found that one in 10 over-50s don’t know how they will fund their retirement income, and nearly a third say they fear running out of money in retirement.

And the out-of-date assumptions about life expectancy could put retirement plans at risk. Only 9% of over-50s said they were planning to buy a retirement income product that provides a secure income for life, such as an annuity.

Failure to secure an income in retirement could be the result of a lack of knowledge. The research found that 13% of over-50s didn’t know which retirement income products guaranteed an income for life.

Emma Watkins, Annuities Director at Scottish Widows, said:

“Life expectancy has grown substantially in the last 60 years and now one in 10 people will live to be 100. As the concept of the three-stage life is becoming out of date, people facing into retirement are also facing a trade-off between saving more, working longer or having a clearer plan.

“Pension Freedoms opened the door to new opportunities and flexibility for savers, but advice on the best way to put in place a stable, predictable income for life would give some comfort to those facing a retirement that could last more than 20 years.”

As part of our Financial Planning process, we make a series of reasonable assumptions about the future. These assumptions include life expectancy, with our lifetime cash flow forecasts projecting through to age 100 unless there is a very good reason to alter from this course.

We review these assumptions with clients throughout the Financial Plan, as they change over time. By keeping assumptions under regular review, we keep your Financial Plan on track, even when external factors change.

This Financial Planning process enables our clients to be confident that they can live the life they want to live without fear of running out of money.

Jon DoyleWhy underestimating life expectancy in retirement is a costly mistake
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Private School fees on the rise again

Rising private school fees are placing an increasing financial strain on parents, regardless of Labour or Conservative party plans for Private School fees.

Many parents consider independent education to be the best choice for their children. But they are increasingly turning to alternative options to make this private schooling achievable.

That’s according to a new survey conducted by CEBR for investment house Kilik & Co.

The latest Killik & Co Private Education Index found that the average annual cost of a day school has risen by 3% since 2015. It now stands at £15,000 a year or £5000 per term

Popular Private Schools for our Lancashire clients include Kirkham Grammar at £4010 per term, AKS at £4,095 and Stoneyhurst College at £6,850.*

The total cost, including extras, of a 14-year education has risen by 15% to reach £325,600. This is the total cost from reception through to upper sixth form in a day school.

This increase in private school fees has risen faster than wage growth for professional careers, even where both parents are in full-time employment.

Annual private schooling fees, including extras, now represent 39% of an average doctor’s disposable income and 65% of an accountant’s.

But what’s the alternative, if private education becomes unaffordable?

Some parents are sending their children to a state primary school before moving to a private secondary school, as a way to keep the total costs down.

The analysis by CEBR found that around 6,000 more children enter the independent sector when they transition from primary to secondary education.

Choosing to send a child to a state school until either age 8 or 11 could result in cost savings of £63,500 or £117,900 respectively.

These cost savings are expected to continue to rise in the future, and the abolition of the Common Entrance Exam could also accelerate this state to private school trend.

It’s no surprise to see that school fees in London remain the highest in the country this year. Average fees in the capital have risen faster than those in the rest of the country since the turn of the century.

Between 2015 and 2019, fees in Wales and Scotland saw more significant growth.

Wales experienced the fastest growth in private school places in the past year, up 2.4% between 2018 and 2019.

Jon Doyle, Founder and Financial Planner Juniper Wealth, said:

“The rising cost of fees is a concern for parents looking at private schooling. Even for those parents in traditional professional careers, these findings show how important planning is in meeting the increasing costs of funding the private education of their child or children.

“Having a financial plan in place to assess what is manageable with a family’s financial resources is critical and pairing this with an understanding of each child’s needs. With a strategy in place, parents can work out what is most important to them.”

*All fee stated are for Secondary Years, Day only and are correct as at 24th October 2019

Jon DoylePrivate School fees on the rise again
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