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Typical worker approaching retirement is 58% short of their pension goal. Are you saving enough?

Figures suggest that workers nearing retirement could find they’re facing a significant income shortfall later in life. Understanding how your pension savings will add up before you retire is crucial for creating long-term financial wellbeing.

According to a report from the Social Market Foundation, people approaching retirement are facing a pension shortfall of almost £250,000 if they want to achieve their desired income. Collectively, across the UK there’s a savings gap of £132 billion.

One of the reasons for the gap is that many 50- to 64-year-olds don’t know how much they need in their pension.

Only a third of those nearing retirement have an accurate idea of how much they need to save to reach their goal income.

As a result, two-thirds could face an unexpected gap when they reach retirement or may not notice the gap until they’ve already started depleting their savings.

Not recognising a pension gap until you retire could mean you need to scale back the lifestyle you’ve been looking forward to and working towards.

If you don’t realise there’s a gap and start withdrawing a higher income than is sustainable, you could run out of money.

The challenge of aligning your savings with your income

As fewer people are now paying into a defined benefit (DB) pension, which delivers a reliable income throughout retirement, a key challenge is translating how your contributions will result in an income.

45% of people paying into a pension only have a defined contribution (DC) pension. With this type of pension, you make contributions which are then usually invested. When you retire, you have a pot that you can start accessing to create an income.

As you’ll be responsible for managing withdrawals and ensuring your pension will last throughout your retirement, it can be difficult to understand how much you need to save through a DC pension.

In 2012, auto-enrolment started and now most workers are eligible for a pension that their employer will set up and contribute to, the majority of which are DC pensions.

So, it’s more important than ever that workers understand how their contributions are adding up and what it will mean for their retirement.

42% of people nearing retirement have no idea what income they will need

To be able to understand whether you’re saving enough through a DC pension, you need to understand what income you want in retirement.

Despite this, 42% of people nearing retirement said they have no idea what income they will need to achieve their goals.

Many people find that their essential expenses are lower in retirement than when they were working. This may be because you may have paid off your mortgage or have fewer travel expenses. A rule of thumb is that you need two-thirds of your current income to maintain your lifestyle in retirement.

This is a good starting place but there can be huge differences in what income retirees need. It will depend on your personal circumstances, so it’s important to take a closer look at your expenses.

Start with the essential costs, such as utility bills and grocery shopping, to create a baseline retirement income. Once that’s done, you can add additional costs that will help you create the retirement lifestyle you want, like a budget for eating out, going on holiday, or attending social clubs.

As well as regular discretionary spending, you may have larger one-off costs that you need to factor in, such as updating your home or an extended holiday.

Once you understand what your ideal income is, you can calculate if you’re saving “enough”.

What is “enough” when you’re saving for your retirement?

With a DC pension, you have more flexibility to create an income when you retire. Yet, 16% of people don’t understand what their options are, while 40% aren’t confident about securing the income they need.

This is something financial planning can help you with.

We’ll work with you to understand how much you need to save into your pension to retire when you’re ready and deliver an income for the rest of your life. It means you can look forward to retirement knowing that you’re taking the necessary steps now.

We’ll also help you understand what your options are. From a flexible income to a guaranteed income through an annuity, the decisions you make about how to access your pension should complement your wider plans and priorities.

The sooner you review your pension, the more likely you are to reach your goals and have an opportunity to close gaps if you find them.

To arrange a pension review that can give you confidence about the future, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have 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. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.   

10 tips if you’re taking on a property project

Whether you plan to purchase a fixer-upper or want to take on a project in your current home, a renovation can help you put your stamp on a property and increase its value. If you’re taking on a large-scale project, here are 10 tips to help you stay on track and achieve your goals.

1. Commit to a full building survey

If you’ve purchased a new property and plan to make extensive renovations, a full building survey can be useful. A full survey, also known as a “level 3 survey” or “structural survey”, will look for potential defects and their causes. It can help to give you an overview of what work needs to be carried out and how urgent it is.

You don’t have to purchase a full building survey when you buy a new home but it can unearth issues that aren’t immediately visible. A full building survey is often advisable if you’re purchasing an older or unusually constructed property.

If you’ve owned the property for a while, it can still be useful to speak to a structural engineer if you plan to take on a large project.

2. Have a clear, realistic budget

Property projects can be costly, even if you plan to do some of the work yourself. Before you start anything, set out exactly what you would like to do and the expected cost of each task. Make sure you consider the cost of materials and receive quotes from several professionals if necessary.

Once you’ve set out a budget, make sure you have a financial buffer too. Projects can end up costing more than you anticipate, especially if you discover issues when working on them.

3. Check if you need planning permission and your plans meet building regulations

You’ve probably seen news stories of homeowners who have been forced to pull down their extension because they didn’t seek planning permission. Avoid this mistake by doing your research first.

For projects such as converting a loft or extending a kitchen, you will likely need to consider planning permission and building regulations. Ignoring these until the project is underway or even finished could result in you losing money.

4. Set out a strategic plan

Once you know what tasks need doing, setting out a timeline is important. It can help you be strategic and efficient. You don’t want to have plastered your walls only to find out that your electrics need rewiring. Think carefully about the order you should do each task to minimise the work and expenses.

5. Start at the top of the property

If you’ll be renovating the whole house or more than one room, being strategic about where you start is also important. In many cases, starting at the top of the property makes sense. You don’t want to complete the work on the ground floor only to have workmen, materials, and disruptions traipsing through and potentially damaging the work completed when you move on to the first-floor projects.

6. Know when to hire an expert

Doing some of the work yourself can save you money and be rewarding, but there are definitely times when you should work with professionals.

As mentioned above, hiring a structural engineer at the start of major projects can give you confidence. Depending on the project you’re taking on, you may need to work with a whole range of other professionals from architects to electricians.

Doing a task that’s beyond your skill level could end up costing you more if you then need to hire a professional to fix the mistake.

7. Get references for tradespeople and professionals

Hiring tradespeople can be difficult. After all, you could be putting a lot of trust in them and handing over significant amounts of money. Doing your homework before you hire someone can give you peace of mind.

You should contact several different businesses or individuals for each project and get them to give you clear, written quotes for the required work so you can compare them. When you’ve made a decision, ask for references, and check them.

8. Understand the value the project will add

If you’re renovating a home you plan to live in, the value of the project will often be the difference it makes to your life. However, how it will affect the price of the property is still important. Understating the monetary value of a project can help you see how this compares to your budget and which parts of the project will add the most value.

9. Keep your neighbours onside

A neighbour getting work done on their home can be disruptive, from the noise to additional vehicles outside the property. Chatting with your neighbours and letting them know what will be happening and how to contact you can minimise complaints and keep the project running smoothly.

10. Have fun

Finally, while taking on a property project can be stressful, it can be fun too. Remember to enjoy the design process and seeing your vision come together.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Is the interest rate rise good news for savers?

After more than a decade of low interest rates, the Bank of England (BoE) has suggested that it will continue to gradually increase its base rate. With savers suffering from low returns, is that good news?

In December 2021, the BoE increased its base rate from 0.1% to 0.25%. While still very low compared to the Bank’s base rate historically, it’s the highest it has been since the start of the pandemic in 2020. Interest rates have been low since the 2008 financial crisis, when the BoE reduced rates in a bid to support the economy. As the UK recovers from the pandemic, the base rate could steadily begin to climb.

While, on the surface, the rate hike looks like good news for savers, it may not be as positive as it first seems.

To start with, the interest you’re receiving on your savings may not have increased following the announcement. According to a Guardian report, five weeks after the BoE announcement just four financial firms had passed on the full rate rise to all, or nearly all, of their variable-rate savings account customers. So, you may not have seen a change in the interest your savings are delivering at all.

Why does inflation exceeding 5% reduce the real-terms value of your savings?

One of the key reasons behind the decision to increase the interest base rate was rapidly rising inflation.

In the 12 months to December 2021, inflation hit its highest rate for 30 years. The rate of annual inflation was 5.4%, which means that the cost of living has increased much faster than the BoE’s target of 2%. At the current pace of inflation, something that cost £1 last year will now cost £1.05. That may not seem like a huge difference but when it’s across all your spending, from holidays to electricity, it adds up and can place pressure on your finances.

Inflation doesn’t just affect your day-to-day budget either – it also affects the spending power of your savings.

While the money sitting in your account doesn’t decrease, its spending power does if the interest earned is lower than inflation. So, unless your savings are earning interest above 5.4%, they are losing value in real terms as you’ll be able to buy less with that money.

Again, it’s something that can seem insignificant when you first look at it. However, over a sustained period, it does affect the value of your savings.

The BoE’s inflation calculator demonstrates this. If you had £20,000 in a savings account in 2010, it would need to have grown to £26,225.20 in a decade to maintain its spending power. This is because the average annual inflation was 2.7%. Now imagine how much your savings would need to grow to keep pace with inflation of 5.4%.

So, what can you do to maintain the value of your savings? Investing could provide a solution.

First, it’s important to note that cash savings can still play an important role in your overall financial plan. For example, your emergency fund should be readily accessible in case you need it, so a cash account often makes sense, even if interest rates are low.

When does investing make sense as a strategy to beat inflation?

Investing can help your savings to grow at a pace that maintains or exceeds the rate of inflation. As a result, it can help you maintain or grow your spending power over time. However, it does come with risks.

The value of investments can rise and fall, and you will experience periods of volatility, so investing should be done with a long-term outlook. If you’re saving for goals that are more than five years away, whether that’s helping children get on the property ladder or planning for retirement, it can make sense. If your savings are for short-term goals, like going on holiday, investing may not be right for you.

This is because a long-term time frame gives the peaks and troughs of market movements a chance to smooth out. If you’re investing for a short-term goal, what happens if you need the money at a point when your investment values fall? It could mean you have to cancel plans or sell more units to achieve the same goal, which could have a knock-on effect for other goals.

If you already have a rainy day fund for unexpected costs and plan to save for more than five years, it is worth thinking about whether investing is appropriate for you. We understand that you may have concerns about investing and the associated risks, but we’re here to offer you support in understanding your risk profile, choosing investments, and reviewing their performance. Please contact us to discuss what steps you can take to reduce the effect of inflation on your wealth.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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.

8 in 10 cancer patients suffer a financial hit. Here’s how protection policies can offer security

Being diagnosed with cancer can mean facing physical and mental challenges, but research finds that many patients also face financial obstacles.

Research from Macmillan Cancer Support found that 83% of people with cancer in the UK experience some kind of financial impact from their diagnosis. More than 1 in 3 patients said their finances were severely affected.

At a time when you’re worried about your health or need to focus on treatment, financial concerns can place an additional burden on people who are battling cancer. The research shows just how many people are affected by this.

Some of this financial burden is due to patients being unable to work or reducing their working hours. It’s not surprising that 75% of cancer patients experience some loss of income. However, the findings also show that cancer patients are likely to see their day-to-day costs rise, which may be unexpected for many. This may include higher travelling costs or higher energy bills. More than half (54%) of cancer patients see an increase in their day-to-day living costs. Macmillan estimated that for those affected, the average amount added on top of their usual expenditure is £891 a month.

The combination of income loss and higher expenses can place patients under significant financial stress at a time they should be focusing on their health and wellbeing.

Are there things you can do to financially protect yourself if something happens?

There are steps you can take to improve your financial resilience if you’re diagnosed with cancer. However, we often think “it will never happen to me” and put these steps off.

Cancer Research figures suggest that there are around 1,000 new cancer cases in the UK every day. The organisation also states that 1 in 2 people born after 1960 will be diagnosed with some form of cancer during their lifetime. While there have been huge advancements in detecting cancer early and improving treatment in recent decades, the findings are still scary.

Other illnesses and accidents can also place you under financial pressure. So, what can you do to provide a financial buffer if your income is affected by a diagnosis?

The first thing to do is look at the sick pay your employer offers. If you’re an employee, you’ll be entitled to Statutory Sick Pay (SSP). However, SSP is just £96.35 a week and is paid for up to 28 weeks, so it’s unlikely to cover your essential outgoings and it doesn’t provide an income in the instance of long-term illnesses. Many employers will offer an enhanced sick pay policy, which may continue to pay out your full salary or a portion of it, for a defined period, so it’s worth checking your contract.

Secondly, you should review your emergency savings. Having cash in a readily accessible account can provide you with peace of mind in the short term if something does happen to you. It’s often suggested that you have up to six months of outgoings in an emergency fund to meet expenses if you need to take time off work.

Finally, financial protection policies can provide you with a financial buffer if you’ve been diagnosed with a long-term illness, such as cancer. There are two main options to consider:

  1. Income protection: This type of policy will provide a regular income if you’re unable to work due to an accident or illness. The income provided is usually a portion of your regular salary. It can help you meet regular costs while you’re ill. The policy will provide an income until you’re able to return to work, retire, or the term of the policy ends. As a result, it can provide financial peace of mind if you’re diagnosed with a long-term illness.
  2. Critical illness cover: If you’re diagnosed with a condition named within a critical illness policy, it will pay out a lump sum. This may include cancer and other serious illnesses like multiple sclerosis, a heart attack, or stroke. What is covered will depend on the policy and provider, so it’s important to check. The lump sum provided through a critical illness policy can be used how you wish, such as paying for regular expenses or paying off your mortgage.

It’s impossible to know what will happen in the future, but by taking steps to ensure your financial resilience even if you become ill, you can have greater confidence. It’s also a step that can allow you to focus on what’s most important, including recovering or spending time with loved ones. If you’d like to discuss what you can do to improve financial resilience, please get in touch.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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8 things to do to give your finances a spring clean

As you start to put winter behind you, you may be thinking of giving your home a spring clean or the projects you want to take on over the next few months. As you do, don’t forget to think about your finances.

Regularly reviewing your finances and plans for the future can help keep you on track. It can provide a chance to find opportunities you may have previously missed to help your assets go further, and ensure the steps you take continue to reflect your plans. Here are eight things to do to give your finances a spring clean.

1. Review your budget

While looking over your budget can seem like a chore, it’s still a worthwhile task. For example, does your budget still reflect your needs and goals? Going through your regular expenses can help you manage your money more effectively.

As well as looking at what money is going in and out of your account, assess if there’s anything you can do to simplify the steps you’re taking. For instance, if you regularly contribute to an ISA, why not set up a standing order? It can minimise the financial tasks you need to do and ensure it doesn’t slip your mind.

2. Organise your paperwork

It’s easy for paperwork to become unorganised. Taking some time to review your paperwork can help ensure you, or others, have access to the information when you need it. Make sure important documents, such as insurance policies, are accessible, and take the opportunity to clear out paperwork that you no longer need.

If your documents are stored or delivered online, make sure you know how to access everything and download important information.

3. Review your pensions

Whether your retirement is years away or you’ve already retired, keeping on top of your pensions is important.

If you’re still paying into a pension, reviewing your contributions and forecasts can help give you an idea of whether you’re on track for the retirement you want, or if you need to take additional steps. Don’t forget about old pensions you may not be paying into, and consider whether consolidation could be beneficial for you.

If you’ve already retired and are using flexi-access drawdown or have a pension you haven’t accessed yet, a review can give you confidence in the future and ensure you have enough for the rest of your life.

4. Check your State Pension entitlement

If you’ve yet to reach State Pension Age, do you know what you’ll be entitled to? To receive the full State Pension, you must have 35 years on your National Insurance record. You should also look at when you will be able to claim the State Pension, as the age is gradually rising and is currently under review. Not being able to claim the State Pension when you expect to, or not being entitled to the full amount could harm your long-term plans.

5. Assess your financial resilience

It’s impossible to predict what will happen in the future. As part of your financial plan, you’ve likely taken steps to create a financial buffer in case something unexpected happens, do these steps still reflect your needs and risks?

Looking at the steps you’ve taken can give you confidence that you’ll be protected and highlight potential gaps. This may include checking your emergency fund and calculating how long it would cover essential outgoings or reviewing if protection policies are still adequate.

6. Check the level of interest your savings are earning

Interest rates are still low, but as the Bank of England increased its base rate, you may be able to make your savings work harder. Switching to an account that offers an initial incentive or a higher rate of interest can give your savings a boost. If you don’t need access to your savings in the short or medium term, locking them away for a defined period could help you secure a better rate of interest too.

7. Review the rate of interest you’re paying for credit

Rising interest rates can mean your savings earn more, but if you still have some form of debt, your regular outgoings could increase too. Creating a plan to pay off debt with a high interest rate can improve your finances over the long term.

It’s also worth looking at transferring your debt to access a better rate of interest. You may be able to transfer existing credit card debt to a different provider that offers an introductory 0% interest rate, for example.

8. Review when your current mortgage deal comes to an end

Finally, if you’re paying off a mortgage, make sure you know when your current deal comes to an end. Once the deal is up, you’ll usually be moved on to the lender’s standard variable rate (SVR), which will typically have a higher rate of interest than alternative deals you could find.

If you need any guidance or would like to review your financial plan, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. 

Not all mortgage contracts are regulated by the Financial Conduct Authority. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

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