Alan Kendrick: Worries about retirement
Many people who have had the foresight to set up a pension scheme in their early working lives when they come to retirement age are surprised that their pension is not as large as they expected. This is often because they have not had their pension reviewed on a regular basis. This is very important as individual circumstances change and in recent years pension legislation has changed considerably.
Many people who have had the foresight to set up a pension scheme in their early working lives when they come to retirement age are surprised that their pension is not as large as they expected. This is often because they have not had their pension reviewed on a regular basis. This is very important as individual circumstances change and in recent years pension legislation has changed considerably.A pension scheme has two main stages; the first is the accumulation stage which is when the contributions are being made. The contributions should be reviewed on, say, promotion, marriage, children or divorce. The contributions are invested, either directly or indirectly, into mainly stock market investments. The stock market is affected by the credit crunch and is currently very low.
Regular reviews would have helped to preserve the value of the pension funds. These are important at any time but especially important within five years of retirement. During this period the investments should be changed on a phased basis to lower risk which is not so subject to the fluctuations of the stock market. Two years ago, stock market values were much higher, this phasing would have helped preserve the value of the funds and there would have been a larger sum available with which to buy an annuity.
The second stage is actual retirement when instead of paying in, you are taking out the benefits. The post war year "baby boomer" generation is now coming up to retirement and this could very well be the worst time for so many people to retire, not only because of low stock market values, but also because annuity rates are low.
I recommend to my clients that they defer their retirement for a few years to give the market time to recover, but this is not always possible and besides people do not always want to work on past the age of 65, and who can blame them? However, if you are about to retire all is not lost, the actual annuity does not have to be taken from the pension company that the contributions were paid into. It is possible to shop around and transfer the scheme to a different insurance company (Open market Option) which is prepared to pay a larger pension. In addition, if you have health issues, even for such common things as high blood pressure and/or high cholesterol, or a smoker, often a significantly greater pension can be obtained. Pension rises of up to 40 per cent have been obtained for more serious illnesses.
There are other options on retirement than just taking an annuity which may be even more appropriate, especially if you have a large pension fund of say 100,000 or more.
People are no longer old at the age of 65 and more and more want to lead an active retirement. In fact, on average, they will live at least another 20 years and the average age is increasing all the time. The decisions you make on your pensions will affect the rest of your life and the quality of your retirement.
A regular review with a financial adviser will enable you to make informed choices about your pensions taking into account your circumstances and ever-changing Government legislation.
Alan Kendrick is an Independent Financial Adviser, Oakwood Insurance Consultants and Financial Services. Tel: 01778 341658
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Thursday 18 March 2010
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