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Poor pension planning and retirement shortfalls: Parental advisory
The idea of children looking after parents as they grow older is part of the fabric of many societies.
Such filial obligations have arguably become less routine, though, by the retirement of the so-called ‘Baby Boomer’ generation.
Many men and women have headed into their golden years buoyed by the benefits of careers born of better access to education and supported by increasing adoption of private pensions and a rise in the value of property.
However, the end of a working life does not mean a reduction in stress for everyone. In fact, some news media have reported the findings of research suggesting that one-sixth of parents are worried that they will have to rely on children for financial support in their old age .
The study by an insurance firm also concluded that almost one-third of the over-40s questioned reckoned that intentions to save for their retirement were not in great shape.
Some explained their position was due in part to having plundered savings in order either to help their children meet the costs of further education or to get onto the housing ladder.
Having done so, they believed it only fair that the favour is returned when they give up work themselves.
It’s a far cry from the retirement idyll forecast only three years ago as the Government relaxed its rules on pensions, allowing people the freedom to draw down money from the pot invested to see them through the rest of life in order to spend how they wished.
Despite the Institute for Fiscal Studies warning that there would potentially be negative consequences of the move , the then Pension Minister, Steve Webb, predicted that those approaching retirement should be able to even take cash out of their pension pots and buy pricey Italian sportscars.
The remark certainly made for a catchy soundbite and although few may have taken Mr Webb’s advice into their nearest car showroom, he ran the risk of creating a future which was wholly golden without necessarily spelling out the full picture.
I’m not just speaking about the problem of people blowing their pension on items which might be considered frivolous and leaving themselves short thereafter.
Individuals who might have been paying the basic rate of tax throughout their careers might instantly end up in the higher tax bracket as a result of taking large sums from their pensions, thereby arguably losing out three ways – less left in the pot, depreciating assets and bigger tax bills.
In that respect, I’m not too surprised by the outcome of this latest survey in the news.
My advice would always be to take a deep breath after flicking through the car magazines, fine art catalogues and exotic holiday brochures and seek guidance.
I wouldn’t want to appear to stifle anyone’s dreams or ambitions, particularly those who believe that they want to reward themselves after working hard and supporting a family.
However, whilst the lure of a Lamborghini or the pull of a Porsche might pale in months, it is best to keep pensions and savings out of the clutches of salesman and at hand to give yourself all the comfort which you might need, particularly as the average retirement now stretches longer than ever before.
If you or your clients have any queries in the area of pension planning, retirement planning or estate planning then please get in touch.