Quantative Easing and falling retirement income

2011 has proved to be a volatile economic year and a testament to this manifested itself in the second introduction of Quantative Easing (sometimes referred to as QE2) in early October 2011 by the Bank of England. There are many proposed benefits for this additional cash flow, including the proposed additional funding trying to be established in this round or ‘Easing’ for small to medium enterprises (SME’s).

However, there are some other negative effects. This QE2 introduction has also seen annuity rates fall in the last week or so. This is because the price to providers to purchase Gilts (Government Stock), the financial instrument usually used to purchase an annuity and provides it with the guarantee of income, have increased. This means that annuity providers are now paying more capital to buy the same income. Therefore, as an example, the subsequent pension income provided from the capital deployed has fallen.

Those considering the purchase of pension/ retirement benefits in late 2011 have been concerned by this development and the subsequent annuity rates fall in recent weeks, along with the levels of income that can be achieved from alternative income producing plans, such as the use of the Income Drawdown proposition. This latter Income Drawdown option has also seen a change in legislation this year, reducing the maximum draw that can be taken from a new plan from around 120% of the level of an annuity purchase (GAD rate) to 100% at a new review,. As an example, for older existing Drawdown plans (many have been established for years) the mandatory five year review (new review limit is three years) can see incomes fall significantly from previous allowed maximums. This is a good example of why these types of plans should be reviewed annually.

For annuities, using our services to review the market to seek the best annuity rates (including impaired life/smokers annuity terms) using the Open Market Option (OMO) available under most pension plans (PPP/Section 32/SIPP/SSAS) can make a significant and beneficial difference in the final income that can be achieved.

Talk to us about the full range of options that are available and the income terms that can be achieved. Our website www.churchouse.com features more information on the Retirement Options available here and indicate the variety that each client needs to consider with our guidance and advice. Each client is different and therefore, this blog should not be seen and used as individual independent (IFA) financial advice.

We look forward to helping you with our retirement planning.

Keith Churchouse FPFS

Director

Chartered Financial Planner, ISO22222 Certified Fianncial Planner

Certified Financial Planner

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority.

Churchouse Financial Planning Limited is not responsible for the material on the external links to websites.

For the chapters of your (financial) life

Life, like financial planning can come in chapters. From birth to the grave, life has a habit of turning, like the chapters of a book. And like different chapters in a book, they can be exciting, diverse, creative and sometimes slow. And the book you read could be the details of someone’s life or, as an example, financial chapters.

I wanted to provide some examples of how this might look. This is not an exhaustive list and you should review your own individual needs:

Birth & the early years

You might consider savings accounts (deposit savings) or even the new Child’s ISA (coming this autumn 2011) to start to accumulate cash for a child’s future benefit and use, such as education costs. Parents may also want to review their life assurance arrangements, along with their other protection arrangements (such as Medical Insurance and Income Protection) to ensure these reflect the addition to the family.

Growing up & Education

School fees planning may be on the agenda and early planning of this is vital. Relatives, such as grandparents may want to help with this cost. However, if you have more than one child in close consecutive years, you can find the burden of providing education for both significant. Also, with the recent changes to university costs, accounting for costs to a child’s age of 21/22 may be appropriate ‘Chapter’ in the planning phase.

Employment/ Own Business

You may start to consider pension funding and with the new NEST (National Employers Savings Trust) pensions on their way in the next few years, this saving may become mandatory. This may not be a priority as you look at ways of getting on to the housing market or settling down with a partner. You may also be considering starting your own family and this may introduce the need for protection in the event of death or ill health. Your employer may offer you benefits and you should check these where available.

Family

You may start your own family and the need for protection, school fees planning, pensions and mortgage costs may be upmost in your mind. Sadly also, other issues, such as divorce, may impact on your financial planning. All of these issues need careful planning if needed. This may be the time you may receive an inheritance. You may also want to make sure you have an up to date Will in place along with your spouse/partner to protect your loved ones.

Ending employment & Retirement

Some end work to start their own business (SME) or may reduce their hours before finally stopping work. This is where pension and retirement income planning become vital to ensure that expectations are managed as to what benefit will be provided from the plans that you have been saving into over the years. You (and your spouse/partner) may also be entitled to a State Pension and checking this (using a BR19 State Pension Forecast form) may be worthwhile at the start of this financial planning phase. Some also use other savings vehicles, such as ISA’s to save for their retirement and these can be tax efficient.

You may well have other issues to consider as you approach retirement, such as paying off mortgages and debt. This may be achieved by using all or part of your tax free cash from your pension when drawing income.

Again, seek independent financial advice (IFA) on this subject for your individual needs.

Post Retirement Planning

As you become settled into retirement you may want to consider inheritance tax (IHT) planning or the need for any long term care provision. As you expect, both subjects need careful planning and are not unrelated in the way you handle your finances/ assets as you grow older. Again, you might want to make sure your Will is up to date and reflects any changes in your family circumstances, such as the addition of grandchildren. You may also want to think about whether there is a future need for Power of Attorney protection to help and protect you into the future. You may want to speak to your solicitor about these points.

Summary

It is relatively easy in an article to breeze through the financial chapters of an example lifetime. Because we are all different, each person’s life chapters, financial or otherwise, will be different. However, I hope the above notes provide a flavour of the financial planning issues that you may want to consider as you travel through your life.

Churchouse Financial Planning Limited is a Chartered Financial Planning company and Independent Financial Adviser with over a quarter of a century of experience in UK retail financial services. For information, much of this journey is detailed further in Keith Churchouse’s book, Sign here, here and here! Journey of a financial adviser, available through Amazon here.

The way you chose your financial planning service will vary and no individual advice has been provided in the text of this blog.

Keith G Churchouse BA Hons, FPFS
Chartered Financial Planner

ISO 22222 Certified Financial Planner
Director, Churchouse Financial Planning Limited, Guildford, Surrey.

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority.

Churchouse Financial Planning Limited is not responsible for the content of external webpages and their content.