Retirement planning: pensions, properties and priorities
Nearing the end of the tax year, always acts as something of a reminder to check on the effectiveness of plans made for their futures.
Of course, such provision assumes greater importance as we move towards the end of our working lives.
It’s reassuring to know that what we have put in place will allow us to have a retirement free of worry.
So, my attention was naturally drawn to the results of a survey by the Office for National Statistics (ONS) regarding savings (https://www.ons.gov.uk/releases/attitudetowardssavingforretirementcreditcommitmentsanddebtburdenearlyindicatorsfromthewealthandassetssurveywave5july2014tojune2016).
Interestingly, it found that 10 per cent more individuals reported being confident about having sufficient income in retirement than when the findings of the previous study were issued only two years ago.
However, as is often the case, the headline is put in a fuller and arguably more helpful context by the detail.
It turns out that 40 per cent of those who took part in the survey regarded employment pension schemes as being the safest way to save for retirement, yet almost one-third of those with workplace or private pension schemes acknowledged that they were currently not contributing to them.
The easiest conclusion is that this is because contributing to a pension is unaffordable. Even so, this isn’t necessarily the full picture. Many people seem to regard pensions as unappealing for various other reasons.
Entrepreneurs, for instance, believe them to be even rather more risky than the respondents to the ONS’ questionnaire. What they don’t like is the like of control, preferring to take matters into their own hands rather than surrendering their prospective financial security to a fund manager.
Many employees are also critical of pensions. Their awareness of workplace pensions was famously jogged by an expensive ad campaign mounted by the Department for Work and Pensions (DWP) (http://www.thisismoney.co.uk/money/pensions/article-3282654/Is-work-pension-looks-like-Government-unveils-8-5m-fluffy-mascot-promote-auto-enrolment.html), only for the same ministry to inform them of wide-scale consequences of their bosses choosing the wrong scheme (https://www.ftadviser.com/pensions/2017/03/13/half-a-million-workers-missing-out-on-pension-tax-relief/).
In addition, over the last few years, we have seen some of the tax relief removed from pension contributions and a restriction on the amounts which can be saved into a scheme and gain tax relief. I am sure that even the most bullish financial adviser would probably accept that further, similar restrictions seem inevitable in the future.
Those uncertainties underline why people who can afford it are, for example, increasingly favouring bricks and mortar rather than pensions as an attractive option. This is despite the significant tax changes in this area.
The ONS detected a three per cent rise in the number of individuals opting for property. Whilst the survey found it might not be regarded as the safest way to provide for retirement, it was proving the most popular and I think that I know why.
A considerable proportion of individuals with whom I and my colleagues at Enterprise Tax Consultants speak on a regular basis tell us that property allows them more direct control. They can see – almost in real time – how their investment is appreciating and by how much, allowing them a better idea of how big a chunk of their retirement nest egg it will account for.
Although it’s useful, therefore, to hear the ONS explaining how people are more confident about being able to meet their outgoings once they stop work, it’s important to keep a close eye on your own plans and not switch on the retirement planning autopilot.
If you or your clients have any queries in relation to retirement planning then please get in touch.