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Retirement

Women seeking financial support

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Financial Planner, Carol Lammy-Steele, discusses why women are less likely to seek financial support from a Financial Adviser.

Gender Pensions Gap

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Women’s pensions at retirement are half the size of men’s

The gender pensions gap is the difference in the average amount of money that men and women have saved for retirement and it begins at the very start of a woman’s career.

Women are more likely to take breaks from work to raise children or care for relatives, which can reduce their earnings and pension contributions over time. They also tend to live longer than men, meaning they need to have enough saved to last them through retirement.

As a result, women’s pensions at retirement are half the size of men’s, regardless of the sector they work in,
research has highlighted[1].

Long-term financial impact

The research found that every single industry in the UK has a gender pensions gap, even those dominated by female workers. Considering women are likely to live four years[2] longer than men, this issue deepens as they need to have saved around 5% to 7% more at retirement age.

Worryingly, more than a third (38%) of women who have taken a career break were not aware of the long-term financial impact it would have on their pension.

Three key industries

According to the research, the gender pensions gap exists regardless of average pay across different sectors, and ranges from a gap of 59% in the healthcare industry to 13% in courier services.

The healthcare (59%), construction (51%), real estate/property development (48%), pharmaceutical (46%), aerospace, defence and government services (46%) and senior care (45%) sectors were found to have the largest gender pensions gaps.

Of these six sectors, three are key industries for female employment – healthcare, pharmaceuticals and senior care[3]. There are many reasons for the gender pensions gap, ranging from women holding fewer senior positions and being paid less, resulting in lower pensions contributions, to the fact they are more likely to take career breaks due to caring responsibilities.

Gender confidence gap

Another potential driver is a significant gender confidence gap when it comes to managing pension pots. More than a quarter (28%) of women said they had confidence in their ability to make decisions about their pension, compared to almost half (48%) of men[5].

This lack of confidence extends further to other $nancial decisions, with women less likely than men to feel confident managing their investments (22% of women versus 41% of men) and their savings (56% of women versus 67% of men).

While many factors behind the gender pension gap are out of most people’s control, there are some actions you can take to help reduce it:

  • Contribute as much as you can to your pension – and start early.
  • Compound interest remains hugely underrated and poorly understood by both some men and women.
  • Check the charges on your historic pension pots. If appropriate, see if consolidating your pots will bring them down.
  • Check how much your State Pension will be and when you’ll get it. If it’s not going to support your ideal lifestyle, plan how you’ll cover any shortfall.
  • Put a bit more into your pension whenever you get a pay rise.
  • Talk through your pension planning with your partner. Make sure you know about each other’s saving plans, contribution limits and that you are both on the same page.
  • Keep a regular eye on your pension to make sure you’re in full control of it and saving for your ideal future.

There are a number of ways to close the gender pensions gap. Employers can offer flexible working arrangements that allow women to balance work and family life. Governments can also provide tax incentives for pension contributions. And finally, individuals can look to save
more for retirement.

Source data:
[1] The analysis is based on LGIM’s proprietary data on c.4.5 million defined contribution members as at 1 April 2022 but does not take into account any other pension provision the customers may have elsewhere.
[2] ONS: Life expectancy at birth in the UK: 82.9 years for women vs 79 years for men; Office for National Statistics, 2018–2020. Average four years.
[3] According to the ratio of female members across the Legal & General book of business.
[4] Legal & General Insight Lab survey of 2,135 workplace members was conducted between 4–26 July 2022.
[5] Opinium survey of 2,001 UK adults was conducted between 4–8 February 2022.

Tax Planning in Retirement

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Managing Director and Chartered Financial Planner, Michael Cope, discusses tax planning in retirement.

Worries About Retirement

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Worries about retirement, research has found:

52% of 1,212 UK adults surveyed are concerned they have not saved enough money to sustain their current lifestyle in retirement

34% of full time works say the state of their retirement finances is a cause of “significant stress”

9% said they doubt they will be able to fully retire

37% say they have a clear retirement savings strategy

24% had reduced their contributions since the start of the Covid pandemic

On average, respondents said they saved £298 into their pension each month

Steps to Retirement

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Step One: think ahead to the type of retirement you want

The first step is always to have an idea of what you want to do when you eventually stop work. It is helpful to have a good idea of the lifestyle you want, how much it will cost and how you are going to pay for it. You may want to travel, spend more time with family and friends, pursue hobbies and interests or move house. However you see your retirement, itis important to think ahead, plan ahead and cost up how much this may cost so you put a savings/investing plan in place.

Step Two: plan to cover your costs

You will need to make sure that you have enough saved up to cover your basic costs including living expenses and any debts or financial obligations you may have. You will need to look at your current savings levels, investments, pensions etc and map them all out to see what you already have/expect to have and then to put additional savings/pension contributions plans in place. Once this is done you will have a better idea of how much you will need to retire. At Ellis Bates we use sophisticated cashflow to map out your income and expenditure and map these against your retirement goals to bring your retirement journey to life. Hop over to  https://www.ellisbates.com/retirement-calculator/to add in some overview numbers to get an idea of how much you will need to retire.

Step Three: be enthusiastic

Retirement planning is complex but the more enthusiastic you are about retiring, the more likely you are to develop a robust retirement plan and retire at the age you want to and with the lifestyle you want.

Step Four: factor in inflation

The cost of living will go up as we are seeing currently, so you’ll need to make sure that your savings and investments including your pensions not only keep can keep pace with inflation but keep ahead if possible so that your buying power is not eroded.

Step Five: seek impartial advice

External advice compensates for any emotional biases you may have about making big financial decisions. A DIY approach to managing large pension funds at retirement is fraught with risk. People can easily buy the wrong products, incur unnecessary tax bills or simply exhaust their retirement funds too quickly, whereas an adviser will provide an impartial, cool-headed approach to your finances and offer solutions you will not have considered. Obtaining expert professional financial advice will ensure you are on track to meeting your goals. The sooner you start planning, the more likely you are to achieve a comfortable retirement, at an age you choose. We can help you calculate how much you need to retire, simply book a free consultation.

Millions of married couples have no idea about their spouse’s pensions & retirement plans

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Millions of married couples have no idea about their spouse’s pensions and retirement plans, according to new research

78% of non-retired married people do not know what their spouse’s pensions are worth.

47% of non-retired married people have not spoken to their spouse about their retirement plans

85% of non-retired married people are not aware of the tax-efficiencies of planning retirement together

Pensions & Retirement Still Remain a Taboo

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When it comes to marriage and money, it’s good to talk!

Millions of married couples have no idea about their spouse’s pensions and retirement plans, according to new research[1]. More than threequarters (78%) of non-retired married[2] people do not know what their spouse’s pensions are worth.

Nearly half (47%) of non-retired married people have not spoken to their spouse about their retirement plans and 85% of non-retired married people are not aware of the tax-efficiencies of planning retirement together.

Retirement finances

Wealthy people aren’t doing much better. Mass affluent people (those with assets of between £100,000 and £500,000 excluding property) are more likely than average to be aware of the value of their spouse’s pension, but the majority (60%) aren’t going to plan their retirement finances with their spouse and 78% aren’t aware of the benefits of planning retirement together.

The research indicates that millions of married people are not talking to their partners about their pensions and retirement plans. That’s a mistake because couples who jointly plan their retirement can be much better off when they stop working.

Lifetime of saving

Most people have a good idea of what their house is worth, and the same attitude should apply to their retirement funds. After a lifetime of saving, the value of a retirement fund can be worth as much as a property so it’s important that people know how much their retirement savings are worth and the potential death benefits they offer.

The best way for people to ensure they have the retirement they want, their pension income lasts throughout their retirement and that they avoid unnecessary tax bills is to obtain professional financial advice. This is especially true for people who plan to retire within the next five years.

Pension tips for couples

  • Pay into your partner’s pension: A higher-earning partner approaching the Lifetime Allowance or Annual Allowance could pay additional contributions into their partner’s pension. The contributions will attract tax relief.
  • Don’t forget the death benefits and Inheritance Tax benefits of pensions: Pensions won’t normally form part of the estate for Inheritance Tax purposes and, on death before age 75, they can usually be paid out tax free (on death after 75, they are taxed as the beneficiary’s income). It can make sense to discuss when and how to access a pension and if it would be better to spend any other savings first.
  • Avoid unnecessary large withdrawals from a pension fund: Couples should consider how much money they need to withdraw from their pension funds. Drawing too much too quickly can lead to large tax bills.
  • Make sure your partner knows who to contact about your pensions if you die: You may have carefully arranged all your finances so that they can be passed to your loved ones in the most tax-efficient way possible. However, if your partner hasn’t been part of the conversation they may make uninformed decisions. It’s worth remembering that any adviser/client relationship you have ends on death. Data protection rules mean your financial adviser won’t necessarily know what is happening. This can lead to irreversible and costly mistakes being made.

On retirement, many people’s first instinct is to request their full tax-free cash entitlement. However, unless a large lump sum is needed
for a specific purpose, this is not always the wisest course of action. If flexibly accessing a pension, it can often make sense for couples to retain most of the tax-free cash entitlement until a later date, looking to utilise the personal allowance (and potentially the basic rate tax band) to draw tax-efficient income instead.

Successfully managing finances in marriage

When you and your spouse married, you agreed to share a financial future. It’s an important issue for most married couples. Although successfully managing finances in marriage is essential to your happiness together, talking about money may not come naturally. To discuss how we could help you plan your finances, please contact us for more information.

Source data: [1] LV= surveyed 4,000+ nationally representative UK adults via an online omnibus conducted by Opinium in June 2021. [2] Includes couples in civil partnerships. UK population stats from ONS. Total UK adult population is 52.7m UK adults (aged 18+).

Options at retirement

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Options at retirement

Annuities – guaranteed income for life

Flexible retirement income – pension drawdown

Uncrystallised Funds Pension Lump Sum

Combination – mix and match

a couple happy at their options at retirement

Pension options at retirement

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a couple happy at their options at retirementWhat can I do with my pension?

Deciding how you want to start taking money.

Due to the changes introduced by the government in April 2015, when you reach the age of 55 (subject to change) you now have more flexibility than ever when it comes to taking money from your pension pot.

But before you do anything with your hard-earned cash, it’s important to take the time to understand your options, as the decisions you make will affect your income in retirement. Before you take money from your pension plan, it’s important to ask yourself if you really need it right away.

When and how you take your money can make a big difference to how much tax you might pay and how long your money will last.

Most pensions will set an age from which you can start taking money from your pension. They will also have rules for when you can
take your pension earlier than normal, for example, if you become seriously ill or unable to work.

When the time comes to start taking money from your pension, you’ll need to decide how you want to do this. If you’ve got a personal
pension or a defined contribution pension, you can take up to 25% of its value as a tax-free lump sum.

The remainder of your pension fund will be taxable and may either be taken as cash, used to buy an annuity (a guaranteed income for a
specific period or for the rest of your life), or you may leave the money invested and take withdrawals on a regular basis or as and when
you need.

With a defined benefits pension, you may be able to take some of its value as a tax-free lump sum, but this will depend on the rules of your scheme. The rest of the money will be paid to you as a guaranteed income for the rest of your life.

Different levels of risk and security and potentially different tax implications

The different ways of taking your money have different levels of risk and security, and potentially different tax implications too. As with all retirement decisions, it’s important to take professional financial advice on what’s best for you.

Everybody’s situation is different, so how you combine the options is up to you.

Annuities – guaranteed income for life

Annuities enable you to exchange your pension pot for a guaranteed income for life. They were once the most common pension option to fund retirement. But changes to the pension freedom rules have given savers increased flexibility.

The amount you will receive depends on a number of factors, for example, how long the insurance company expects you to live and other benefits the annuity provides, such as a guaranteed payment period or payments to a spouse or dependent.

Annuities can also be for a specific period, not just for life. This can be useful if someone wants a guaranteed income for part of their retirement, say before the State Pension is payable.

Flexible retirement income –pension drawdown

When it comes to assessing pension options, flexibility is the main attraction offered by income drawdown, which allow you to access your money while leaving it invested, meaning your funds can continue to grow.

Pension drawdown normally allows you to draw 25% of your pension fund as a tax-free lump-sum, or series of smaller sums. This ‘tax-free cash’ is known as the Pension Commencement Lump Sum, or PCLS. The rest of the fund remains invested and is used to provide you with a taxable income, via withdrawals on a regular basis or as and when you need.

You set the income you want, though this might be adjusted periodically depending on the performance of your investments. You need to manage your investments carefully because, unlike a lifetime annuity, your income isn’t guaranteed for life.

Uncrystallised Funds Pension Lump Sum (UFPLS)

You do not have to draw your pensions commencement lump sum at the outset. Instead you may use your pension fund to take cash as and when you need it and leave the rest untouched where it can continue to grow tax-free.

For each withdrawal, the first 25% (quarter) is tax-free and the rest counts as taxable income. There might be charges each time you make a cash withdrawal and/or limits on how many withdrawals you can make each year.

Combination – mix and match

It may suit you better to use a combination of the options outlined above. You might want to use some of your savings to buy an annuity to cover the essentials (rent, mortgage or household bills), with the rest placed in an income drawdown scheme that allows you to decide how much you wish, and can afford, to withdraw and when.

Alternatively, you might want more flexibility in the early years of retirement, and more security in the later years. If that is the case, this may be a good reason to delay buying an annuity until later.

Want to discuss how to decide what to do with your pension pot?

Find out more about your options for taking an income in retirement and what you need to consider. If you’re unsure about the best approach for you, please get in touch with us for further information.

a couple walking hand in hand on a beach after saving a retirement nest egg for retirement

Retirement nest egg

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a couple walking hand in hand on a beach after saving a retirement nest egg for retirementNearly a half of over-50s regret not saving into their pension earlier

The days of working for a single employer for your entire career and retiring with a comfortable pension are largely gone. The responsibility for accumulating a retirement nest egg now rests with individuals as opposed to their employers.

Saving enough for retirement is challenging for many people, but an era of changing demographic trends, such as increased longevity and delayed marriage, can make this journey even more difficult.

Not financially stable enough to contribute

New research[1] into the attitudes of the over-50s towards their pension has uncovered that nearly a half (49%) regret not saving into their pension earlier, and almost two-thirds (64%) wish they had contributed more into their retirement savings at an earlier stage.

Just over a quarter (26%) stated that they only started paying into their pension after they turned 30 years old, primarily because they did not feel financially stable enough to contribute any sooner (51%). Many, understandably, prioritised raising children (42%) and paying o” their mortgages (40%) before putting any surplus cash into their pension. However, a third put leisure/holidays (32%), clothing (21%) and their pets (10%) before their retirement income.

‘Moderate’ standard of living in retirement

Almost four in ten (39%) people over the age of 50 believe that an income of between £10,000 and £20,000 per annum in retirement will be enough to live ‘comfortably’. This is despite figures announced stating that £20,800 per annum will only provide an individual with a ‘moderate’ standard of living in retirement. To enjoy a ‘comfortable’ standard of living, the amount would need to increase to £33,600 per year.

Just under a quarter (24%) of those aged over 50 believe that a personal contribution of between 0% to 5% of their salary is an ‘appropriate and achievable’ level to attain a savings pot big enough to support them in retirement.

Taking professional financial advice is key

When asked about financial advice, worryingly more than 70% of over-50s say they have never sought professional financial advice regarding their pension. Almost a third (30%) say they feel they know what they are doing and don’t need financial support, whilst 10% say they rely on their family and friends for support and advice. However, after hearing that they could add as much as £47,000 to their pension[2] (over a decade) by taking professional financial advice, half of them say they would.

Pensions are more important to more of us than ever before. Automatic enrolment has brought pension savings to millions, but this was only introduced in 2012 and for many, especially those over the age of 50, it is perhaps too little, too late.

Take stock of your financial situation early

Hindsight is a wonderful thing and life in your 20s and 30s can often take over, with children to raise, debts to pay and holidays to be had. However, it’s important to take stock of your financial situation early. You may think you have enough spare cash, or that you have years until you retire, but most people over the age of fifty (64%) wished that they had paid more into their pension pot, earlier.

It’s also important that people are realistic about how much they might need to live on in retirement. With more people continuing to pay rent or mortgages after they finish working[3], it is unlikely that an income of between £10,000 and £20,000 per year will be sufficient to have a ‘comfortable’ lifestyle.

Planning for a full and happy retirement?

To avoid sleepwalking into retirement it’s important to understand how much you have in your pension, what that money might look like as retirement income and how long you might need that money to last. For advice on all your options, including your retirement nest egg, please contact us.

Source data: 1,034 UK adults over the age of 50 (retired and nonretired) interviewed between 31.01.2022-07.02.2022
[1] https://www.retirementlivingstandards.org.uk/news/retirement-living-standards-updated-to-reflect
[2] https://ilcuk.org.uk/”inancial-advice-provides-47k-wealth-uplift-in-decade/
[3] https://www.bbc.co.uk/news/business-42193251

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek advice to under your options at retirement.