An OECD report in December 2017 said old age poverty in the UK was high and had been increasing. The rate of poverty amongst the over 75s is 18.5% with women particularly affected. This recent report really does highlight the need to fund personal private pensions to supplement your income in retirement or to join in auto enrolment. As previously mentioned the state pension can form an important core amount of income but most people would find it very difficult to survive on just their state pension. Our state pension is one of the lowest in Europe and therefore we are lagging behind in this area. Taking out a personal pension or auto enrolling also provides you with the ability to stagger retirement and to retire earlier than state pension age, which is rapidly moving into the distant horizon.
Auto-enrolment has been widely welcomed as a way of getting more people into pension savings, however, the current level of contribution is probably inadequate to provide a reasonable pension and there is the prospect that the rising levels of contributions (rising to 5% for an employee – 8% overall with employer contribution) could encourage lower paid workers to opt out completely. The new state pension will generally help those on lower wages to a better state pension but the need for topping up either through auto enrolment or personal pension contributions has never been more urgent.
In other pension news, the FCA is continuing to remind consumers of the risk of “free” pension advice normally the result of an unsolicited call, email or text whereby the scheme assets are transferred abroad to unusual investments such as storage units, parking spaces, forestry etc. The chances are that you may be invested in something very risky or even a scam. Legitimate, professional financial advice is not free and advisers will normally not cold call. It’s important to be very vigilant on all fronts. On the subject of cold calling and scams, I’ve heard of a couple of cases whereby the caller claims to be from HMRC trying to secure a payment for outstanding tax. Make sure you don’t give any payment details on the phone, hang up and contact either your tax adviser or accountant or HMRC direct. Please note there is also an email version of this scam which invites you (after you provide your bank details) to accept a repayment of tax (supposedly from HMRC) – this is, again, a scam and to be avoided. There are many other scams around at the moment so never reveal any private, personal or financial information and keep safe.
On the pension front there is an interesting development from Phoenix at the moment on pension freedoms. Phoenix is offering certain clients the option to cash-in their annuities for a taxable lump sum. The provider will be writing to around 20,000 people asking them if they want to convert their income for life to a one-off payment (taxable). I understand that eligible annuities will be no more than £300 per annum (therefore very small) and will generate a lump sum of no more than £2,000. This is a follow-up to an earlier initiative in 2013 which was along the same lines and saw 2/3rd of those within the initiative taking up the offer. If you are contacted as a Phoenix annuity policyholder, It may be useful to get pension guidance on this issue to make sure that this is a worthwhile deal for you. The pension guidance service can be accessed via the gov.uk website to book appointments face-to-face at the citizens advice centre in Honiton and Exeter, or for guidance on the phone.
The 2015 pension freedoms has removed the requirement for an annuity purchase however those who had already bought an annuity have on the whole missed out. The government considered developing this idea but backtracked after due consideration. It’s not unlikely that other providers may follow suit if the Phoenix initiative is successful.
More news next time – if you have pension, investment or retirement needs please contact Helen Mulvaney on 01395 512166 for professional independent advice.
Helen Mulvaney
Helen Mulvaney