In today’s unpredictable world, making sure your retirement income matches your lifestyle plans is of paramount importance. From 1970 to the present day, the average lifespan in the UK has increased nearly ten years, to just under 81 years of age. With improved health care, people are also more physically active in their senior years than they were 50 years ago. Having worked hard for 50 plus years, it makes good sense to analyse your financial planning to ensure your pension income can provide for everything you’ve promised yourself. After all, age is but a number. Here are seven ideas worth considering to help make your pension more secure.
Pensions – Cash – Investments
Do you have a good spread across your portfolio? If you have a number of pensions - company, government, and private - are you you able to live the lifestyle you want, on the guaranteed income from your pensions alone? Get the calculator out. Contacting your private pension provider, and getting a projection of weekly/monthly income is a good starting point. If, like many today, you choose to continue working, converting your private pension pot to a lifetime annuity may boost your income.
For those living in Switzerland, it's highly recommended that you take advantage of the Swiss Pension System, which is built to maximise your pension pot. The optional personal Pillar 3a makes up the remainder of your current salary and allows you to maintain your current quality of life, and as such, if you’re eligible to contribute to this pension scheme, we highly recommend that you do.
It’s also important to consider whether your spouse or significant other has a pension. There are a range of annuities available, including being able to pass the income to your spouse after you pass away.
Ask your financial adviser to explain the benefits of the different plans available to you.
Keeping your savings in a bank’s saving scheme is an effective method of keeping your cash safe. The downside, however, is the very low rates of interest being paid today, which seem unlikely to change much in the foreseeable future following the financial crash of 2008.
The UK government has now taken precautions to prevent savers losing their money, which, in the UK’s case, is up to £100,000 per customer. If you still have money over in the UK, and have over that amount with one bank, even in separate accounts, draw a lump out, and deposit it into a savings account with another bank. As your account will be accruing interest, be sure to withdraw enough to keep below the £100,000 ceiling.
3. Company Shares
Does your financial planning include company bonuses paid in the form of company shares? The closer you get to finishing work, the more important it is to ensure you have enough regular cash income to sustain your plans. That may include continued payments on a home elsewhere in Europe in the early years after you retire. Cashing in any company shares (and any other high risk shares you might have), should be considered. The cash can be used for a plan which will provide an additional source of monthly income.
4. Expats Abroad
Many who move abroad to live elsewhere in Europe do not consider the benefits of the pension schemes in their new country of residence. If you’ve decided you will not be returning to the UK, it is worth considering setting up a pension plan in your new country, as these can come with great financial advantages.
As previously mentioned, for those expats residing in Switzerland, the Pillar pension system is highly robust, and is built to ensure you can maintain the same quality of life that you enjoyed while working. Pillars 1 and 2 (government and employee pensions) make up around 40% of a person’s salary, with Pillar 3 making up the remainder. The tax advantages of contributing to the third pillar are indisputable, making contributions into this scheme a no brainer.
For those elsewhere in Europe, Qualifying Recognised Overseas Pension Schemes (QROPS) offer a range of pension plans which are recognised by, but not available in, the UK. With the range of plans available, a discussion with your financial advisor is recommended. Another consideration to be taken into account should be if your country of residence has a lower cost of living that the UK.
In this case, would you be better off keeping your pensions in the UK, and moving cash out as and when needed? Although bank charges can be high, a commercial money transfer company is usually cheaper, or get family members to bring out cash as and when you need it; saving on transfer charges, and benefitting from the exchange rate.
5. High Risk Investments
In your younger days, were you rather more cavalier with your cash than today? Did you go for a percentage of higher risk investments to obtain faster growth of your pension pot? As retirement creeps closer, now is the time to consider cashing-in those high risk packages, for something with lower returns, but that are arguably safer. Even if you are in a position to maintain your standard of living from the pension plans you already have in place, can your spouse survive when you’re gone?
6. Work a little longer
It’s surprising how many people who have worked all their lives, decide a few months after retiring, that they preferred the routine that their job offered them and return to the workforce.
If you are lucky enough to have all your major commitments paid off, such as your mortgage, working for an extra five years can make a big difference to your pension pot, and even make up the shortfall. Pensions can be left to continue accruing interest, providing a higher income five years on, and any surplus monthly income can be invested for the future.
7. Consider downsizing
If you have a few years to go before giving up work, the children have grown and flown the nest, and you have a pension shortfall, perhaps it’s time to consider downsizing. With a smaller home, no mortgage, and a nice lump sum to invest for the future, things begin to look brighter, and you can start to spend your finances on experiences that really matter.
The number of people with little idea of what their pension pots are worth as the day of reckoning gets closer, is frightening. Being a high earner, is no buffer to the risk of pension plan shortfall. High earners invariably have higher financial expectations, they expect their pension to reflect their proposed lifestyle and are surprised when it doesn’t. No matter what your income bracket, the closer you get to retirement, the more imperative it is to engage your wealth management advisor, and take an in-depth look at whether your pension arrangements, can cope with your leisure expectations.