If there ever was an era when retirement offered people a chance to finally take it easy and just enjoy life, that time is long past for millions of pensioners and for savers who are approaching retirement. Money is a significant issue for many if not most retirees, who are learning the hard way that a retirement isn’t likely to be carefree if there’s no way to fund it. As the government and employers scramble to cover the needs of the growing numbers of ageing Britons, we can expect to see shakeups in the systems that previous generations took for granted. Keeping apprised of the latest developments can help you plan better and make the necessary adjustments in your finances.
Why some pensioners may be feeling the squeeze (again)
It seems as if every time a new Budget is announced, there’s more bad news for pensioners (as well as other savers and some investors), and the Spring 2017 Budget is no exception. One item of contention has been Chancellor Philip Hammond’s announcement that beginning in April 2018, the dividend allowance will be slashed from £5,000 to £2,000. This move is expected to affect 2.2 million people, including seven percent of pensioners.
Of course this is not an issue if you don’t invest in the stock market or don’t hold stocks that pay dividends, but many pensioners do. For these people, dividends may be a significant part of their retirement savings. In fact many people pick shares based solely upon their dividend payouts. Experts have said that the changes to the dividend allowance means that the size of investment portfolios that can be held tax-efficiently will be halved.
The Chancellor also announced plans to introduce a 25% charge on transfers to qualifying recognised overseas pension schemes (QROPS). But a pensions campaign group called Pension Life warned that Chancellor Hammond is “letting pension scammers off the hook” by targeting legitimate firms with compliant products. Angela Brooks, chair of Pension Life, said that the charge “disadvantages many genuine pension savers who are using bona fide, regulated advisers and who want to benefit from the advantages that transferring their UK pensions out of Britain can offer.” She claimed that it fails to stop any of the current scammers using QROPS as the vehicle for their scams, and that the Chancellor has done nothing to address “the real problem of pension scams on British expats.” Overall, the net effect of this charge will be to make pension and tax planning more uncertain for many people.
Even before the latest Budget brouhaha, there was talk about government proposals that would compel many people with “final salary” pensions to accept cuts to their income. As reported by the Telegraph on 18 March 2017, under a proposal outlined in a government green paper in early 2017, financially stressed businesses could be allowed to cut final salary pension payments to employees, as a measure to save the businesses from collapse. The paper suggested that firms be allowed to freeze pension payments so they don’t keep pace with inflation. While this would potentially save employers billions of pounds, pensioners would find their income falling ever further behind rising prices. Needless to say this is a highly controversial issue, and at the time of this posting the government is engaged in extensive consultation on reforming final salary schemes.
But it’s not all bad news for pensioners. Chancellor Hammond has confirmed that beginning 6 April 2017, the “personal allowance”, will rise from £11,000 to £11,500. This will take hundreds of thousands of Britons – including many pensioners – outside income tax altogether.
The items above are just some of the matters affecting retirement funding. If you’re nearing retirement or are already there, it’s important to be aware of these and other issues that can make a difference between a life of struggle and one of relative financial security.
Always have a backup plan for cash emergencies
For many people of all ages, “running out of money before running out of month” is a familiar scenario. For retired people on a fixed income this situation can be especially troublesome, as they often have very limited recourse for increasing their cash flow, compared to a younger, actively employed person.
And very often this cash deficit is not the result of poor money management. Even with the most careful planning, scrupulous saving, and prudent spending, emergencies and unexpected expenses can make it all go awry. Borrowing is sometimes a necessity, and if the borrower has credit challenges (which is the case with an increasing number of older people), qualifying for a personal loan may be no easy matter.
Fortunately there are alternative types of smaller, short-term loans that don’t require a lengthy approval process or a credit check. You’ll pay higher interest for this convenience, and it’s important not to borrow any more than you absolutely need (and can afford to pay back on a timely basis), but with these caveats in mind, it may be worth your while to explore these options.
If you find yourself having to resort to borrowing very often, however, that’s a sign that you need to explore better ways to maintain your cash flow. It’s possible that you may have to reconsider the entire concept of “retirement” and take on a part-time position to help make ends meet. (There are worse fates.) Or if you have savings or investment funds, consult with a qualified adviser to figure out how you can stretch your money further. In short, always have a plan, and a backup plan as well.
Additional resources for pensioners
There are numerous online resources for information about financial issues concerning retirement, so if you have any Internet access at all, there’s no excuse for ignorance about these matters. Apart from various sections on the GOV.UK site related to retirement benefits, the Age UK web site is a rich mine of information. For instance, if you’re curious about what the latest Budget means for you, this page provides a good capsule summary. It also contains a link to a more detailed briefing aimed at professionals and advocates for the ageing.
But online resources, no matter how good they are, are only a starting point. And because financial issues are generally quite complex it is sometimes difficult to determine exactly how the latest Budget proposals, laws, or regulations will affect you. Before making a decision that will affect your financial future, you’d be wise to discuss your options with a properly credentialed and qualified retirement planning professional. An adviser can help you restructure your investment portfolio, find the best pension scheme (and avoid pension scams), and/or explore other ways to make your money go further. Retirement may not be what it was in the “good old days”, but you still have choices, and a good adviser who specialises in retirement planning can help you determine the best options for your unique set of circumstances.