Flexi-access drawdown can provide retirees with more freedom to create an income that suits their lifestyle. However, Financial Conduct Authority (FCA) figures suggest that many retirees are taking unsustainable amounts from their pensions. It could mean they run out of money during retirement.

The government introduced Pension Freedoms in 2015, which provide retirees with more ways to access their pension savings. Flexi-access drawdown has proved a popular way to create a retirement income, with retirees using drawdown to access a flexible income as and when they want to, with the rest of their pension usually remaining invested.

By opting for drawdown, retirees can increase and decrease their income to suit their needs. They could also benefit from investment returns over their retirement, although keep in mind that returns cannot be guaranteed. However, they also need to be responsible for taking a sustainable income to ensure their pension will last a lifetime.

According to interactive investor’s Great British Retirement Survey, 27% of retirees worry about running out of money. Now, the FCA data suggests that it could be a real prospect for thousands of retirees.

More than 160,000 retirees are withdrawing at least 8% annually from their pension

The FCA data looks at how almost 600,000 retirees are accessing their pension. Worryingly, data for 2020/21 found that 160,000 retirees – more than 1 in 4 – are taking 8% or more from their pension each year.

In some cases, withdrawing larger sums doesn’t mean retirees are risking their future financial security. For instance, they may have multiple pensions that they are using in turn, or are taking a larger income at the start of their retirement, but plan to take a lower income later in life.

However, for many retirees, a withdrawal rate of 8% would be unsustainable over the long term. With retirement often lasting several decades, a withdrawal rate of 8% would mean many would need to rely on the State Pension or other assets in their later years. It could also mean you don’t have the means to pay for unexpected costs later in life, such as care.

Does the 4% rule still make sense for retirees?

You may have heard of the “4% rule”. This suggests that withdrawing 4% from your pension each year would be sustainable, but it’s not as simple as that.

While the 4% rule can be a useful starting point when working out how much you can take from your pension, it’s not a hard and fast rule. Your circumstances will play a significant role in what is sustainable. The 4% rule was also created based on historical investment data from several decades ago, and past performance is not a reliable indicator of future performance. Many retirees will also need to draw on their pension for longer, as life expectancy has increased.

So, how do you calculate a sustainable pension withdrawal? There are several things to consider:

1. How long will your pension need to provide an income for? Understanding how long you’ll be drawing on your pension is vital for calculating what a sustainable income is for you. You will need to consider your life expectancy. Keep in mind that while the average life expectancy is a useful indicator, many people live longer than this. Underestimating how long your pension needs to last can leave you in a vulnerable financial situation later in life.
2. What reliable sources of income do you have? You may have a reliable source of income that can create a foundation and provide security. This may include your State Pension, a guaranteed income from a defined benefit (DB) pension or an annuity. If your reliable income will cover essential costs, it can provide peace of mind. Remember, if you have a defined contribution (DC) pension you want to access flexibly, you can still use a portion of it to purchase an annuity to create a base income.
3. How is your pension invested? If you’re using flexi-access drawdown, your pension will usually remain invested, but you should look at how it’s invested and the expected returns. However, remember that returns cannot be guaranteed, and you may experience volatility that could reduce the value of your savings. When reviewing how your pension is invested, you should consider your risk profile.
4. Do you have other assets you could use to create an income? Pensions are often the main source of income in retirement, but your other assets may also play a role. If you have savings, investments, or property that you can use to supplement your pension, a higher withdrawal rate may be sustainable.

Your pension can provide you with financial security and freedom throughout retirement, but it does require careful planning. If you’d like to discuss how to access your pension and what your options are, 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. 

If you’ve yet to retire, you may give little thought to the State Pension. But the government is currently reviewing it, which could mean millions of people will need to wait longer than expected until they can claim it.

The State Pension Age is now equalised for men and women and is currently 66, but there is already a gradual increase planned. By 2046, the State Pension Age will reach 68 for those born on or after 1 April 1977. Once you reach State Pension Age, you can begin to claim your State Pension, which will then provide an income for the rest of your life. The full State Pension for the 2022/23 tax year is £185.15 a week (£9,339.20 a year), although the actual amount you receive will depend on your National Insurance record.

The State Pension Age has slowly increased in line with rising life expectancy, but so has the cost for the government. According to the Office for Budget Responsibility, State Pensions are the biggest item in the social security budget. In the 2018/19 tax year, the department estimated that the State Pension cost £96.6 billion.

Against a backdrop of tightening fiscal policies following the Covid-19 pandemic, the government has now launched a second State Pension Age review.

What will the review look at?

The review will focus on whether rules around the State Pension Age are appropriate, based on life expectancy data and other evidence.

The government said: “As the number of people over State Pension Age increases, due to a growing population and people on average living longer, the government needs to make sure that decisions on how it manages its costs are robust, fair and transparent for taxpayers now and in the future.

“It must also ensure that as the population becomes older, the State Pension continues to provide the foundation for retirement planning and financial security.”

While nothing has been confirmed, there has been speculation that the State Pension Age will rise further or at a faster pace than currently expected. The results of the review will be published by 7 May 2023.

Life expectancy figures from the Office for National Statistics suggest that men reaching 66 this year have an average life expectancy of 85 years, meaning they’d be claiming the State Pension for 19 years. With a 1 in 10 chance of reaching 96, a significant portion will claim the State Pension for an extra decade. For women aged 66, the average life expectancy is 87, with a 1 in 10 chance of celebrating their 98th birthday. The review will look at whether the State Pension is sustainable when considering life expectancy predictions.

The review could also prompt a look at the State Pension triple lock. The triple lock guarantees that the State Pension will rise each tax year by either average wage growth, inflation, or 2.5%, whichever is highest.

However, Covid-19 has put the triple lock under pressure. For the 2022/23 tax year, the wage growth data was not used, as furlough meant many incomes fell in 2020, leading to a rise of more than 8% in 2021. As a result, the triple lock was temporarily suspended, and the State Pension will rise by a more modest 3.1% in April 2022.

Amendments to the triple lock policy would breach the Conservatives’ election manifesto, but that doesn’t mean changes can be ruled out.

Why the review could affect your retirement plans

The State Pension provides a foundation to build your retirement income. While you may have pensions or other assets you plan to use to fund retirement, the State Pension is still likely to play an important role.

If you’re not able to claim the State Pension when you expect, it could mean you need to delay retirement plans or reduce your income so your other assets can stretch further. Understanding the review and the changes the government could make can help you create a retirement plan that you have confidence in. That could mean saving more during your working life to create a larger financial buffer or reviewing your pension so you can have confidence in the income they’ll provide in retirement, even if changes occur.

If you have concerns about your retirement or would like to work with a professional to organise your pension and other assets, please contact us. We’ll help you get to grips with your pension now, and can schedule regular reviews so you know you’re taking steps to keep your retirement on track, even if the State Pension review leads to changes.

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, the value of your investment and the income from it may go down as well as up. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

It’s the season for giving. If you’re buying Christmas presents for children this year, there are huge piles of toys to wade your way through. Whether you’re purchasing for your own children or not, it can be difficult to know what they really want, and which gifts will get used. If you need some inspiration, here are 10 of the toys that are set to appear on letters to Santa this year.

1. Scalextric Batman vs Superman

For young racers, Scalextric is a great option. The racing toy has featured on Christmas lists for decades and the new partnership with the Justice League means it's ready to engage with a whole new generation. The track can be put together in multiple ways, providing numerous racecourses to navigate, including two loop-the-loops. With two cars racing, it’s a great way for children, and even adults, to play together with a bit of a competitive edge. The only question is, will you play as Batman or Superman?

2. My 1st Wooden Train Set

For younger children, this classic wooden train from John Lewis can help children explore their imagination without the flashing lights and noise that many modern toys boast. The set comes with a traditional jigsaw track, so children can build different shapes and it can be added to at a later date. It also comes with three carriages, a magnetic pulley to load items, and even a train conductor. The wooden components are sturdy and long-lasting, even when young children are exploring through play.

3. GraviTrax PRO Starter Set

GraviTrax is the latest version of the traditional marble run game. Suitable for children aged eight and up, it lets them build innovative tracks that can develop creativity and critical thinking. This starter pack comes with 149 elements, including walls, pillars, and balconies, which let children build their own vertical 3D structures. Other sets from GraviTrax can be combined to create even more elaborate designs. The packs come with blueprints to get the ball rolling, but there are hundreds of ways to put the components together.

4. PAW Patrol Mighty Lookout Tower

After the release of the PAW Patrol movie this year, it’s not surprising that Ryder and his crew of search and rescue dogs are popular this Christmas. The latest release, the Mighty Lookout Tower, stands at 2 and 3/4-feet tall, giving adventurers the perfect vantage point to look out across the bay. Suitable for children aged 3 and up, it is perfect for fans of the show, with space to store Mighty Pup vehicles and other figurines they may already have. The tower includes an elevator, zip line and even a working telescope to keep an eye out for trouble.

5. Toniebox

The Toniebox is an audio system for children. It’s a box with simple controls and no bright screens, which makes it perfect for story time. It’s designed for children to use independently from the age of three to immerse themselves in stories and audio adventures. Simply place a Tonie character on the speaker to play associated music and stories. Each box comes with an initial character but there are more to collect. From Beethoven for Kids and classics like Robinson Crusoe to modern well-known characters like the Gruffalo and Disney’s Moana, there are plenty of stories to explore.

6. Fisher-Price Laugh and Learn Grow the Fun Garden Kitchen

For budding gardeners and chefs, this play garden kitchen will provide hours of entertainment. On one side, there’s a home garden and a kitchen on the other. Toddlers and young children can plant, pick, prepare, and serve their delicious creations to you. It’s a great way to introduce different foods and healthy eating, as well as learning more about colours, shapes, and more. There are more than 30 play pieces, including food, as well as colourful lights and music to keep children entertained as they go about their work.

7. Lego Elf Clubhouse

Lego is a brand that features on the Christmas list every year, and this year is no different. For 2021, one of the most popular sets has a very festive theme. The Elf Clubhouse is where Santa’s elves spend their time cooking waffles and wrapping presents. Of course, there’s a decorated Christmas tree, Christmas lights, and a sleigh too. It can be mixed with other Lego toys and sets to create an even bigger masterpiece or let a child’s imagination run wild.

8. Kaloo My First Doll

Kaloo dolls are the perfect first doll. They’re made from soft materials, so they’re suitable for any age. Whether they are being used to cuddle at night or play with during the day, they’re an excellent addition to toy boxes. There’s a range of different dolls, each with a unique look to choose from.

9. Play-Doh Kitchen Creations Rising Cake Oven Playset

If after watching the Great British Bake Off, you’ve got a young baker on your hands, this Play-Doh set could be perfect. As well as Play-Doh, it includes accessories like a mixing bowl, piping syringe, and decorating tools. It also comes with a play oven that lets you see the “cake dough” rising when you turn a handle. There are countless opportunities for children to create cakes and put their own stamp on their bakes. 

10. SmartGame Squirrels Go Nuts!

This gift will provide hours of puzzles, can you help the squirrels get ready for winter? This is a sliding game that has 60 challenges to test your skills. It’s a game that can help develop logic, problem-solving and planning skills. It guarantees plenty of fun and comes with a compact case, making it the ideal toy to take when travelling too.

Inflation in 2021 is expected to hit 4%. Inflation means the cost of living will rise and, for mortgage holders, knock-on effects could mean the cost of a mortgage becomes higher.

From grocery shopping to electronic goods, prices are rising. The Bank of England now expects UK inflation to rise above 4% by the end of the year, double its 2% target. There are numerous reasons for inflation rising, including shortages caused by temporary factory closures due to the pandemic.

Families across the UK are likely to find their day-to-day spending on both essential and non-essential items rise. But if you’re paying a mortgage, steps taken to limit the impact of inflation could have a knock-on effect too.

One of the ways the Bank of England can tackle inflation if it’s rising too quickly is to increase interest rates. A rise in interest rates could affect how much your mortgage repayments are and the long-term cost of borrowing.

Could your monthly mortgage repayments rise?

Interest rates have been low for more than a decade. For mortgage borrowers, it means a mortgage has been cheaper. So, how would an interest rate rise have an impact?

Let’s say you owe £200,000 on a repayment mortgage you’re paying over 20 years. The table below shows how changing interest rates could have an impact on your monthly outgoings.

Source: Money Saving Expert

Over the full mortgage term, an interest rate increase can mean the total cost of borrowing is far higher.

In the above scenario, a mortgage holder with a 3% interest rate would pay £66,169 in interest over 20 years. If the interest rate increased to 6%, the total cost of borrowing reaches £143,946. If interest rates begin to climb, it could affect your monthly repayments and total cost.

If the Bank of England increases interest rates, it will have an immediate impact on some mortgage holders.

A tracker-rate mortgage follows the Bank of England’s base rate. So, mortgage holders would see their monthly outgoings increase straight away. A variable mortgage rate follows the lender’s interest rate, which will often follow rises and falls set by the Bank of England. If you have a variable-rate mortgage, your repayments are also likely to rise if an interest rate hike is announced.

Those with a fixed-term mortgage will not be affected immediately. A fixed-term mortgage means your interest rate is fixed for a defined period, often 2, 3, 5 or 10 years. While you wouldn’t be affected straightaway, when your current deal ends and you look for a new mortgage, you could find interest rates are no longer as competitive.

While interest rates could rise in the coming months, it’s important to note that the Bank of England is unlikely to make steep increases. A gradual approach to rising interest rates to pre-2008 levels is far more likely. Reviewing your mortgage now and assessing the impact a rise could have on your outgoings can provide you with more confidence about the future.

Is it time to choose a fixed-rate mortgage?

If interest rates are likely to rise, it can be tempting to switch to a fixed-rate mortgage now. There are pros and cons to choosing a fixed-rate interest mortgage that you should weigh up.

If your mortgage deal has not yet come to an end, you should also keep in mind that you could face an additional fee if you switch early.

Remember, the interest rate isn’t the only thing you should consider when applying for a mortgage either. Other areas, such as the flexibility to overpay, can be just as important depending on your circumstances.If your mortgage deal has not yet come to an end, you should also keep in mind that you could face an additional fee if you switch early.

Choosing a mortgage and finding the best interest rate for you can be time-consuming and complex, so give us a call for our guidance throughout the process.

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