Protecting nest eggs

Protecting nest eggs be they a pension, property, savings or other investments is of interest to most people that are in their 40’s and beyond. For one, the middle-aged are likely to have earned more than younger people which; means that they should have some investments that need protecting.

In the last 17 years the rate of pay (the number of people in work, divided by the number of hours that they work, and the income that they earn) has fallen from three to one. In addition the cost of living and inflation have both risen whilst interest rates on savings have fallen from 17% in the 1980’s to 0.25% now. This in turn has meant that young people have not had as much disposable income, and even if they did, putting savings in a bank account now yields a low return. The savings pinch has been felt in pension contributions, savings and investments and also in rising rent costs; as first-time buyers have struggled to save for a deposit and mortgage for a home.

The story for occupational or workplace and private pension enrolment is rather similar. Though private sector pension enrolment peaked in the 1960’s at around 8.1m, pension membership was at its lowest level in 2001 at 2.7m. The number of self-employed people has grown from 3.4m to 4.8m in the last 20 years, but private pension contribution has declined to 1:10 from 3:10 amongst this group. The age of guaranteed ‘final salary’ pensions which; was experienced by those born in the 60s and 70s is now over.

For those who are not yet retired private pensions are worth considering to top-up pension pots, here are some key points:

• Contributions made into a pension are subject to tax relief.
• A quarter of the pension fund value is available as a tax-free lump sum from the age of 55.
• There is flexibility at retirement as to how you wish to draw your pension eg as an ‘income for life’ or perhaps as a ‘flexible drawdown’.
• Flexibility with death benefits.

And for those who are drawing near to taking a retirement income, consideration could be given to protecting pension pots my making use of ‘Life styling’ options available on certain pension schemes. This allows the member to effectively de-risk their pension fund the closer they get to their nominated retirement age. This is done by moving parts of the fund over a period of time into more cautious investment areas such as fixed interest securities, gilts and cash.

The housing market has recently been described as static, by mortgage lender the Halifax and also by the Royal Institute of Chartered Surveyors (Rics). Average house prices have increased exponentially over time having been at £3,465 in 1966 and now being at £313,655 (Apr 2017). Though the government has launched first-time-buyer ISAs for homeowners, and the popularity of mortgages for the over 55’s is growing, there are still financial challenges for ‘rich retirees’ regarding insurances and protecting their inheritance whilst also enjoying later life.

There are a range of insurances to be considered:

• Whole of life policies to protect investments until the end of life.
• Convertible term policies for example to cover investments including mortgage final payments for a period of time.

And for would-be homeowners the help-to-buy or maybe a Lifetime ISA might suit.

• To be eligible for a help-to-buy ISA the applicant must be saving up for a first home. The government will contribute up to 25% on top of savings up to the value of £3,000 on top of individual ISA savings totalling £12,000.
• To be eligible for a lifetime ISA the applicant must be a UK resident aged between 18-39 years’ old. One lifetime ISA per person per tax year may be opened with a maximum investment of £4,000 per tax year. The government will top up savings by £1,000 tax-free, per tax year (25%); if you have saved £4,000.

Whatever your circumstances we would advise you to contact your IFA to obtain expert tailor-made advice. The fast paced changes of government and policy post Brexit means that the UK economy is a shifting landscape.

We are here to advise and help you on finance matters. Please contact one of our independent finance experts to discuss insurances, equity release, mortgages, ISAs, investments and pensions.