Using your pension like a bank account

Using your pension like a bank accountToday’s announcement that the government are giving additional rights to savers to “dip in” to their pension funds, just like a bank account, is really nothing new.

Professional advisers already know about something called phased drawdown and use it where this can be advantageous to their clients.

Taking some pension benefit as tax free cash and some as taxable income (phased drawdown) has simply morphed into taking some tax free cash and some taxable capital.

For some pension plan owners this will indeed be the option of choice at retirement.

There has been some debate about this new freedom and choice in pensions but we are broadly in favour of the changes.

However we have one concern; in our experience many people significantly underestimate their life expectancy.

This presents the risk that they will completely erode their pension fund long before they die and have to resort to using other financial resources or potentially a much reduced standard of living.

I have posted on Twitter about this a couple of times today. The first tweet made the statement:

Good Financial Planning is going to be needed to ensure that their pension funds are not eroded too quickly. My second tweet posed the tongue in cheek comment:

The answer of course will be “no”

If you take capital out of your pension fund please do use it wisely.

Better still, seek professional advice and withdraw pension funds based on a carefully considered Financial Plan which makes reasonable assumptions about the future.

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Challenges for Baby Boomers

Challenges for Baby BoomersNick shared an article with me this morning which highlighted some interesting challenges for Baby Boomers.

The article contained a summary of a survey by Fidelity Investments which looked at the mixed savings habits of 20- and 30-somethings, a generation commonly known as millennials.

Why does this matter for the Baby Boomer generation (those born between 1946 and 1964) and what challenges does it create?

Find out more about our feature-length documentary about Baby Boomers in retirement

Well, the survey also found that 60% of respondents view their parents as good financial role models.

This is a particularly high vote of confidence because millennials typically don’t trust others when it comes to financial advice.

In fact, 23% of millennials claim to trust no one when it comes to their finances.

14% trust their parents when it comes to money matters,11% trust their mother specifically and 8% trust their father specifically – a total of 33% of millennials trusting their parents or a parent most on money matters.

Just 13% trust a financial professional most on personal finances.

This vote of confidence in the financial skills of parents, and the relative lack of trust in financial professionals to deliver financial advice, poses challenges for Baby Boomer parents as they consider the transfer of wealth across generations.

We are increasingly seeing parents in the Baby Boomer generation wanting to transfer wealth to children and grandchildren during lifetimes, rather than waiting until death for this ‘inheritance’ to cascade down the generations.

Gifting during life or using wealth to get adult children onto the property ladder can be a very efficient form of estate planning and also very satisfying for parents.

It does however need to be managed very carefully to ensure wealth is not squandered.

If millennials are generally reluctant to seek professional financial advice when needed, parents will need their own plans and advice to keep family wealth secure and transfer it to the next generation in the most efficient way.

Find out more about our feature-length documentary about Baby Boomers in retirement

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UK inflation falls to 1.2%

UK inflation falls to 1.2%The latest price inflation figures from the Office for National Statistics (ONS) show UK inflation has fallen to 1.2%.

The Consumer Prices Index (CPI) measure of UK price inflation fell to 1.2% for the year to September, from 1.5% the previous month.

This is the lowest rate of UK inflation in five years.

The Retail Prices Index (RPI) measure of UK price inflation also fell in the year to September, from 2.4% to 2.3%.

The ONS say lower energy and food prices contributed to this fall in price inflation, as well as cheaper transport costs.

What the lower price inflation figures mean is interest rates are less likely to rise now until well into 2015. The pound fell in value as a result.

Price inflation figures published in October for the year to September used to be closely scrutinised as they were previously used as the basis for a wide range of state benefits.

However, most benefits are now subject to a 1% capped annual rise, which was introduced in April 2013. If the Conservatives win the next election in May, these same benefits will be frozen for a further two years.

State pension benefits are subject to the ‘triple lock’ of the higher of inflation, earnings growth or 2.5%. With inflation and earnings both lower than 2.5%, this figure will be used instead.

Only disability benefits will rise in line with CPI inflation, so will be uprated by 1.2% next year assuming the government approves this increase.

When constructing and reviewing your Financial Plan, it is very important to make realistic assumptions about future price inflation.

Inflation can drive the long-term outcomes of your Financial Plan and is often underestimated, resulting in a gap between earnings power and needs later in life.

Care fees in particular often rise in cost at a faster pace than the official UK inflation figures published each month by the ONS, so a higher inflation figure should be assumed when considering the cost of care in later life.

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Obese doctors & bankrupt Financial Planners

Obese doctors & bankrupt Financial PlannersOne memory I have of my first holiday to South Africa was being introduced to a family doctor at a braai we attended on the first day we arrived.

This chap was clearly a well respected member of the community, held in high regard by all in attendance.

But throughout the BBQ he was smoking like a chimney and drinking enough white wine to sedate one of the Hippos we would see on safari later that week.

For a health professional to engage in such self-destructive behaviour – particularly in the company of a large number of his patients – was something I considered at the time (and continue to consider) a little ‘odd’.

Following my blog earlier this week about the keynote presentation by Dr James Rouse at the IFP annual conference, I commented on a related trade press article questioning how effective Financial Planners might be in ‘stewarding the very good life’ if they were themselves overweight, inactive and focused solely on money.

It’s was a controversial statement and provoked a response from a couple of people I respect on Twitter.

Others were more supportive of my view.

Now I wasn’t claiming for a second that overweight individuals cannot deliver good financial advice. Of course they can.

What I was arguing is that our roles as Financial Planners are becoming more holistic; the sole focus on the financial aspect of life has expanded to include achieving lifetime goals.

To do the very best we can with each of our clients, Financial Planners should practice what they preach.

There’s a commonly used expression in our profession; “A poor Financial Planner is a poor Financial Planner”.

Assuming you would never seek financial advice from a bankrupt, other than perhaps to learn from their experience and avoid making the same mistakes, it seems remiss to work with a Financial Planner who is not personally living a fulfilled and meaningful life.

I would not take advice from an obese, alcoholic GP who was also a smoker, regardless of their professional expertise.

It’s similar to what author and public speaker David Maister refers to as ‘the Fat Smoker syndrome’; how individuals can overcome the temptations of the short-term and actually do what they already know is good for them.

Obese doctors and bankrupt Financial Planners occupy a similar space in my head; probably capable of fulfilling their professional obligations but unlikely to be inspiring what they preach and not a natural choice as advisers.

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How long are your telomeres?

How long are your telomeres?On Tuesday morning I made my way downstairs from my hotel room at the Celtic Manor Resort and attended a keynote presentation by Dr James Rouse.

I’ve written about James before; he was speaking at the Institute of Financial Planning annual conference and, in anticipation of hearing his presentation, I recently read his new book, Think Eat Move Thrive.

At this point, you might be wondering why a room full of Financial Planners would be listening to an enthusiastic American talking about nutrition, exercise and living high-performance lives.

The simple answer is this; Financial Planning is about so much more than just money.

James explained during his presentation that self-care is a form of social activism. He sees our role as Financial Planners as stewarding the very good life.

Which begs the question, how long are your telomeres?

For the uninitiated, a telomere is a region of repetitive nucleotide sequences at each end of a chromatid, which protects the end of the chromosome from deterioration or from fusion with neighbouring chromosomes (thank you, Wikipedia).

They are a bit like the plastic caps on the end of shoelaces, and, in our bodies, prevent chromosome ends from fraying and sticking to each other.

Over time, due to each cell division, the telomere ends become shorter.

If we can encourage our telomere ends to become longer, we can slow the aging process and even protect against cancer.

One way to boost this anti-aging secret is through strength training. In fact, loss of lean muscle mass is the number one marker for unhealthy aging.

James explained that by working out three times a week with resistance exercises, we can maintain long and strong telomeres, resulting in a longer and healthier life.

This was a bit of a wake-up call for me. My own exercise regime is focused on endurance; mostly running ridiculously long distances and swimming moderately long distances, with the occasional bit of cycling.

Despite owning a set of dumbbells and a kettlebell, they rarely get much use.

My goal for the rest of this year is to form the habit of weight training at least three times a week, whether using these weights or my own bodyweight.

It’s never too late to add some lean muscle, increase telomere length and increase the prospects of healthier aging.

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Removing stress & remaining competent

Removing stress & remaining competentPart of my role here at Informed Choice is to ensure that all our Financial Planners remain competent to do the job that they do.

One of the ways we do that is by observing the performance of the Financial Planner in front of their clients particularly when they are delivering advice to that client.

This morning I spent 40 minutes “observing” Martin do just that.

It was probably the hardest thing I have done this week because the observer has to say nothing at all!

Those of you who know me will understand how much of a challenge me keeping quiet for 40 minutes actually is.

But it was less Martin’s performance (very good by the way) and more the subject that kept me interested for all that time.

The client had asked for advice about how to fund care fees for her elderly mother. Her mother was suffering from dementia and could no longer look after herself an all too familiar problem these days.

The challenge was how to fill the gap between the retirement income provided by pension arrangements and the total cost of residential care. Quite a substantial gap in actual fact.

Fortunately savings and the proceeds from the sale of her home meant that there was sufficient money available to fill the funding gap.

Making sure it would never run out and also ensuring, if possible, that there remained an inheritance available was the twin objective.

If ever there was a need for sound Financial Planning and the benefit delivered by lifetime cash flow forecasting, care fees planning is that need.

Stress removal, certainty and reassurance; all expertly delivered by Martin during 40 minutes well spent.

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Germany, economic data & European recovery

Germany, economic data & European recoveryHas the rich man of Europe caught a cold?

This week we have seen weaker than expected industrial production and export figures from Germany, prompting concerns about the ability of the eurozone economy to recover.

Germany has always been one of the strongest economies in the wider eurozone.

It has the highest GDP per capita of any European country, 24.5% higher than the European Union average last year.

With the eurozone sovereign debt crisis still unresolved, economists and investors have been relying on Germany to help drag the wider European economy out of its hole.

Do these new economic figures represent a bump in the road?

Paras Anand, Head of European Equities at Fidelity Worldwide Investment, has explained in a briefing note for advisers that short term concerns for the German economy could be missing the bigger picture.

“The recent performance of European shares has been driven in part by increasing concerns not just about the shape of the recovery but the fear that we may once again slip into recession.

“This perception has been reinforced by the weak data that has been published by Germany over the last week which is the economy most strategists were optimistic on.”

He goes on to explain that focusing on short term economic data risks missing the medium term recovery story for Germany, the broader European economy and also corporate earnings across Europe.

“Whist there is clearly some softening of demand in key export markets, there is the risk that investors miss the broadening mix of economic growth in Germany in particular where private consumption is a growing component of GDP.

“Additionally, the weakening euro is likely to be supportive for much of the corporate sector, not simply in terms of a translational impact on reported earnings but more fundamentally in terms of the relative competitive positioning of European companies versus their Global peers.

“Whilst the short term response is understandable, it is possible that the bigger picture is being missed.

“There is the risk that investors miss the broadening mix of economic growth in Germany where private consumption and increasing exports are a growing component of GDP.

“Retail sales and consumption continued to grow over the summer and all components for disposable income, such as real wage growth and employment forecasts, are pointing in the right direction.

“In contrast to market sentiment the German consumer has been the key driver for the economy and is expected to remain the focal pillar of strength.

“The temporary interruption from the geopolitical issues around the Ukraine has created short term nervousness in the export market.

“This should not mask the potential of German companies and their much larger export diversification into the structurally growing parts of the world.”

It will be interesting to see how the economic picture develops in Germany and in the wider European economy over the next few months and years.

With the IMA Europe sector showing an average loss of 6.54% over the past six months, investors will be hoping for better news, particularly in respect of corporate earnings which should drive markets to a great extent than economic data.

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Harry Bamford Trophy

Harry Bamford TrophyIn 1976 Andy and I got married.

Soon after we moved away from Bristol to live in Birmingham, then Gloucester and then we moved to Cranleigh (and have been here ever since).

In the early days we often thought we would move back to our home city of Bristol (actually City and County of Bristol – not a lot of people know that!) but we never did.

38 years later and I still have a strong connection with one aspect of Bristol life (two if you include my accent).

The first football result I always look for is for my team, Bristol Rovers.

Bristol Rovers, or “The Gas” as they are known to their fans (their old ground at Eastville Stadium was surrounded by gas containers that used to leak on rainy November evenings thus intoxicating the supporters and players alike), are the poor footballing relatives in Bristol falling out of the football league into the Conference for the first time in their history last season, whilst Bristol City FC seem to enjoy better success on a fairly regular basis; they have more money.

Moving to Cranleigh in 1985 one of the first people we met was Val, our daughter’s primary school teacher.

On hearing our surname, Bamford, Val was able to name the whole of a 1950’s Rovers team which she had been taught to do by her older brother.

The side, including a relative of mine (my father Francis’ cousin), Harry Bamford, a well known and sporting footballer who sadly died in a motorbike accident in 1958.

In his memory the Harry Bamford Trophy was created to be awarded each year to Bristolian footballers for fair play and sportsmanship.

This morning Val dropped into the office a recent copy of the Bristol Post with a full page article describing the Harry Bamford Trophy and the players to whom it had been awarded.

Sadly the trophy went missing following a fire at Eastville Stadium in 1980 but has recently been found and restored.

The trophy  has started to be awarded again. There has been a  bit of catching up to do since 1980.

Regardless of where you end up living and raising a family there will always be something things that links you back to your childhood home.

Goodnight Irene.

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Do you have a care plan?

Do you have a care plan?As our society continues to live longer but not necessarily healthier lives, the need for long-term care at some stage of retirement is increasing.

New research from insurer Partnership has found that most over-65s have not spoken with their families about their potential need for long-term care and many are confused about their financial options.

Partnership found that 96% of over-65s have made no financial plans to pay for long-term care should they need it later in retirement.

73% have not had a conversation with their families on the subject of long-term care, or even thought about it.

As families are often closely involved in planning for long-term care when the need arises, these are quite worrying statistics.

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In addition to putting off these important conversations about planning for long-term care, Partnership found a lack of awareness about the financial products that can be used to fund care costs.

76% of adult children and 77% of over-65s were unaware of immediate care annuities.

These financial products can be used to secure a tax-free income for life to pay for care fees.

Whilst not always the right solution, it is important to consider an immediate care annuity as part of a care fees planning exercise. In many cases, they can offer an effective way to secure care fees and avoid the worry of running out of money in the future.

An immediate care annuity can also be used to ring fence an inheritance for children or grandchildren; something we are often told is an important feature for people entering residential care who are fearful they will run down the value of their estates.

Partnership commented:

“Care is very much on the agenda at the moment but this research highlights that not only have most people not made any plans or spoken to their families, they don’t know what their options are when it comes to paying for care.

“This is likely to be due to the fact that very few people want to consider the possibility of needing long-term care in later life.

“However, while there is a very low understanding of the products that can help people manage long-term care costs, some over-65s are clearly interested in understanding more about their options.

“This suggests that advisers should be speaking to their clients to see if they – or their parents – want further information on care planning.

“Taking time to consider their options now will pay off in the long run.”

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Minister for ageing

Minister for ageingLiberal Democrats have voted in favour of a minister for ageing as part of a Ageing Society Policy Paper at their conference in Glasgow today.

The policy paper sets out a series of proposals for older people, including a cabinet committee on ageing and wellbeing, and a statutory independent older person’s commissioner.

The Lib Dems also want an annual Office for Budget Responsibility (OBR) report into intergenerational equity and a Treasury review into what an ageing population means for financial markets.

This will include the case for longevity bonds. These could ensure an efficient capital market for longevity risk transfers.

They are continuing to back earlier proposals to scrap the winter fuel allowance and free TV licenses for higher rate taxpayers.

Britain has an ageing population and we expect politicians of all persuasions to start addressing this influential demographic ahead of the general election next year.

What promises would you like to see from political parties which would benefit the retired (or soon to be retired) population?

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