In this blog, I want to share with you my DIY approach to organising my finances as I approach 55. 55 has become an important year as it is the point when you move into what can best be called the retirement zone. Technically it’s the time when most of us can start drawing on private pensions. It’s the point when these pensions move from abstract figures on a piece of paper to “real money”.
I was surprised to discover I had more real money than I thought. To be fair to myself, having been a financial adviser most of my career, I have practiced what I preached, joined every pension scheme available and when one hasn’t been, taken a personal pension out for myself.I’ve made a few mistakes along the way (General Portfolio, Allied Dunbar and contracting out of SERPS for too long). But I’ve also had some successful investments (mainly because I was investing in company sponsored plans where the charges were lower and the investment strategies pre-determined by people who knew what they were doing!
Getting all the paperwork together can be quite fun. There’s help to be had from the Pensions Tracing Agency but for me , finding out what had happened to companies I had forgotten about and life companies I dimly remember was a voyage of reminiscence. It’s not a bad thing to do if you approach it in the right ways
Working out the value of what you’ve got is an interesting conversation with a calculator!.
Add all the pots up and then adding in the value of any defined benefit pensions is a harrowing but rewarding task. There’s a simple formula to apply to any guaranteed benefits (including guaranteed annuities), you just multiply the income figure by 20!
Think about the answer.
I was amazed that at some point around the back of last year, I became a pension millionaire. I am really proud about this but I don’t think I should rest on my laurels. Being worth a million pounds in pensions only entitles you to around £35,000pa a year in income, which is a hec of a lot more than most people will get, but won’t buy me a yacht in Monaco.
And being a pension millionaire means you’ve got to start managing your affairs with an eye to punitive tax rates of 55% on your income or capital you draw down.
I’m not moaning about high rates of tax, I am lucky enough to have pension experts at work and at home and I’m not going to bore you with what I’ve been taught about the various forms of protection you can take out to minimise your losses.
At the end of this article, I’m listing all the links the Government give you so that you can sort things out for yourself, but when it comes to managing my affairs, I’m going to use an IFA, because I value professional advice. Finding an IFA who really knows what they’re doing is hard, I know five, I suspect there aren’t more than 1000 in the land. Unfortunately that’s because there are very few people who have sufficient in private savings.
What an IFA can do for you is the cashflow modelling to tell you what your income projections are likely to be over the rest of your life (net of tax) , how your private and state pensions will interact and the risks you face from living too long , needing long term care (for you and others) and in your plans to provide for your loved ones if you die too soon
Work out what to do.
To be honest, most people won’t have much choice but to carry on working. I am happy enough doing what I’m doing but reckon that I have the choice to do a lot less of it , if I chose.
Most of us will be looking to altering the work/life dial over their fifties and sixties. Sadly, most of us won’t be totally in control of how that dial is set. There is neither enough work nor enough savings for most of us to do as we like.
Set against that is a recognition that we feel nowhere near as old as our parents did when they were our age – there’s more life in us. I was laughing with my friends Nigel and Sheila last night (who are both in their seventies) , telling them they look younger every time we meet.
Having a good pension plan for your later years is an encouragement to get out and do more. This is exactly how my friends see things (despite having had some horrible illnesses in their sixties).
I don’t believe in having money to feel rich, I believe money should be spent. I have spent most of my money on wooden boats, school fees and divorce settlements! Neither could be deemed value for money but I’m very proud to have fulfilled my obligations to ex wives, children and to have maintained the wonderful Lady Lucy for me and those who want to share her with me.
This is a very small amount of financial achievement. Tomorrow, the boat will be full of the Family Davis and the Family Le Merle, if I was to compare the little I have done with what they’ve done- I’d be most depressed.
I don’t and I won’t. But what I can do is make the most of my savings by executing my financial plan to ensure it supports my life plan.
Having the freedom to do what I want to do, with whom I want, is why I’ve saved regularly all my life. I’ve spent on my retirement and now I’m going to start enjoying it. I fully expect to live till I’m 90 and have a good chance of living till I am 100. That’s in the financial plan!
It may go wrong, dreams often do, but that shouldn’t stop you dreaming, or living the dream you’ve planned for yourself.
Thanks to Mrs TPAS for providing me with all the kit needed to plan those complicated decisions around the lifetime allowance. These links are brand new and if you are like me and lucky enough to have money, you may want to do some independent research -good luck!
HMRC have launched their new online service for pension scheme members to apply to protect their pension savings from the lifetime allowance tax charge. This service replaces the interim paper process for applying for fixed protection 2016 (FP2016) and individual protection 2016 (IP2016) and also replaces the online form for applying for individual protection 2014 (IP2014).
From now on, members who want to apply for lifetime allowance protection will have to do so online at https://www.gov.uk/guidance/pension-schemes-protect-your-lifetime-allowance.
To apply, members will need an HMRC Online Services Account. To create an account, or to login to an existing one, they should go to https://www.gov.uk/log-in-register-hmrc-online-services.
As this is an online service, members will no longer receive paper certificates with their LTA protection details. Instead they will be able to view their protection details online and they will be able to print their protection details as necessary.
Alongside the new service, HMRC have published more guidance on GOV.UK to help members who want to apply for protection, including a new guide for members on valuing their pensions for IP2014 and IP2016 at https://www.gov.uk/guidance/pension-schemes-value-your-pension-for-lifetime-allowance-protection.
Members who are unable to use the online service can contact the HMRC Pensions helpline for help with applying for protection (https://www.gov.uk/government/organisations/hm-revenue-customs/contact/pension-scheme-enquiries ).
TPAS has produced a Spotlight which covers some of these issues; http://www.pensionsadvisoryservice.org.uk/content/spotlights-files/uploads/Lifetime_Allowance_SPOT021_V2.7.pdf
With the launch of the online service, HMRC will no longer process applications for LTA protection made using the interim process. Any applications made after the 31 July 2016 using the interim, paper process will be returned and HMRC will direct the member to the online service to make their application.
HMRC will process any interim applications in hand at 31 July 2016 but if the application is successful HMRC will issue these members with a permanent protection notification number. Members with permanent protection notification numbers will not need to reapply online and will be able to view details of their protection in their HMRC Online Services Account. To create an account, see details in 2 above.
HMRC’s guidance has stated that temporary protection will only last up to 31 August 2016: holders need to apply for a permanent protection notification number online before their temporary protection runs out.
When an individual applies for a permanent protection notification number, details of their IP2016 or FP2016 (and any previous protections) will show in their personal tax account. HMRC says that as more services are added, the personal tax account will be populated with more details for members to access at any time.