It seems silly to already be getting nostalgic for the early days of the pandemic. But it was interesting reading this article in the April issue of CIPP news. I wrote it in early March and already it has a dated feel to it. But the central message is right – we must do more to get our staff “financially” retirement ready. For many of our staff are getting a feel for retirement and may not find a return to work that easy.
What with the virus and the rain and it being the end of winter, most of us feel retirement ready this time of year. But what does it mean to stop work. An alarming statistic released by the CEBR at a later life conference last week suggested that as many as half of us are back to work months after hanging up our clogs.
Many of us may feel financially ready to walk away from work, only to find that it was work that gave meaning to our lives. Being ready to retire is not the same as being financially ready to retire.
But I’m a pensions expert, not a life coach – so I’ll confine myself to the things that matter to people as they approach retirement.
Let’s start with the obvious target – the pension – or should I say pensions as most people get to retirement today with 6 pots (the latest FCA estimate). If you’ve worked for an organisation and are still accruing (building up) rights to a guaranteed pension (defined benefit) then lucky you.
But for the rest of us, getting retirement ready is about remembering, finding and organising our various pots into one big pot. It’s very hard indeed and even if we get all our pots together , there’s likely to be technical problems with some of the pots which may have guarantees which could be lost if money is transferred.
You need a pensions “Arthur Negus” to spot the rare antiques in your car-boot sale of
pension paperwork. Daunting stuff! Most of us soldier on , calling insurance companies and trying to get sense out of call centres till finally we decide on one pot which we can call our pension. Then the fun really begins. The pension freedoms mean that there are limitless choices we can make about how we want our money paid to us. Each choice has different implications with regards tax and means-tested benefits.
To simplify things, the Financial Conduct Authority have told pension providers to narrow down choices into four.
You want to take all your money in the next five years (cash out)
You want to swap your pension for an annuity
You want to keep your money invested
You want to drawdown an income from your investment
These choices are called investment pathways and if your company’s workplace pension is a group personal pension then the FCA’s idea of “retirement ready” is that you are on one of these pathways.
But of course that’s a very narrow view. For most of us, our retirement is going to be funded by a whole load of things and most of these are nothing to do with pensions at all.
Take inheritances, statistically, most people who get to 55 and “freedom-time” will have one if not both parents on the planet.
The inheritance is often the family home and that can have massive importance to everyone. Having been involved in the running of residential care homes I know
what a gut-wrencher it is for families to lose that home to fees. For many people, being retirement-ready may involve certainty about the inheritance and how to protect the wider family as parents go through extreme old age.
Another area that isn’t talked about much by pensions experts are benefits, principally pension and universal credits and all the component parts of the benefits system that are impacted by having money in pensions and pension income. Learning the way that pensions and benefits interact is a major undertaking , but for those on limited means , it is probably the most important aspect of being retirement ready,
Then there’s property and sometimes second properties. I’ve been saying to clients for decades that you can’t buy a sausage with a brick but that isn’t true anymore. Since insurance companies worked out that they can finance annuities from payments they receive on mortgages, the market for “equity release” has gone through the roof. So long as you have your own property you can drawdown the equity as a capital sum or even turn your housing equity into a pension.
In fact taking money against your property is becoming one of the most common way for people to become retirement ready.
And finally there is everything else from the business you built up to the money you’ve been squirrelling away in ISAs. It includes your savings and your investments Each and every account has a place in the retirement plan that says you’re retirement ready.
In an ideal world we’d know you’d hit your financial targets and you could put your feet up. But as I pointed out at the beginning, knowing your worth and the wage you can pay yourself in retirement is only part of the picture. The other part is your understanding of yourself and your capacity to enjoy what some people call “the longest holiday of your life”