How to avoid a pitiful pension

Neither of my children has saved a penny.

That might sound like a surprising admission for a financial adviser, but sadly it’s not that unusual.

I’ve offered to put them in touch with colleagues who could give them confidential advice, and warned about the difficult old age facing those who don’t save for a pension.


It seems to me that the younger generation live in the fast lane and spend all their money then expect mum and dad to bail them out.

I recently advised a big company based near Heathrow where all the staff had opted for private medical insurance rather than a pension.

The young HR manager told me she’d rather have private medical cover she could use now because she wouldn’t be drawing her pension until she retired – and that was years away.

It’s true that it’s never too late to start financial planning for retirement, but the sooner you start the better:

  • The more you save, the more likely you are to have enough when you retire to enjoy life to the full.
  • With no private pension you will have to manage with a state pension that at the moment can only be described, in my view, as pitiful. No living in the fast lane then.
  • Millions of over-50s worry they will have to sell their family home to make ends meet because of rising inflation, according to research from Saga.
  • Savings accounts may offer poor interest rates but if you were able to expose your capital to some risk you could consider stock market investments which might offer the potential for better returns.

Seeking advice from an independent financial adviser should be the first step. To hear more of my thoughts on this subject
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Avoiding an equity release disaster

Equity release mortgages may be a useful way of releasing money to fund a wedding or holiday, grandchildren’s education or their deposit for a first home, long-term care fees, or simply ensuring there is sufficient income in retirement – while still retaining the family home.

With the right advice, equity release schemes could be an excellent way of releasing cash from a property. But if you don’t take advice, they could turn out to be a disaster.

It’s a stark, uncomfortable fact but one that was underlined recently by the following cautionary tale of a lady who went directly to an equity release lender on the strength of a newspaper ad, instead of consulting an independent intermediary.

What she didn’t realise was that an independent adviser would have checked out whether the loan represented value for money, was competitively charged and suitable for her needs.

It turned out she could have got a much better deal had she used the services of an independent adviser, who would have:

  • Made sure that fees were fair rather than exorbitant.
  • Checked the client had the right income options of a lump sum or a regular income.
  • Arranged the correct type of equity release mortgage for her needs.
  • Structured the loan so she could get extra money without punitive penalties or charges.
  • Taken responsibility for the advice and backed it up with a formal letter of recommendation.

An independent financial adviser will always highlight all the options and allow the client to make informed choices about the correct loan for their circumstances.

If you have any questions about the best equity release mortgage for you, I’d be delighted to help.

When life is one long holiday …

How many of us haven’t sat back on a summer holiday and looked forward to the days when we can give up work altogether?

The thought of having the leisure time and money to treat ourselves to a cruise, go on a city break or enjoy a later-life ‘Gap Year’ is very seductive!

So my heart sank when I read the following headline on the BBC website: ‘Workers facing a bleak old age says pension review.’

The article explained how a review by the Workplace Retirement Income Commission had concluded that up to nine million people faced a ‘bleak old age’ because they were falling through the cracks of private sector pension provision.

The study, led by Lord McFall, found that a third of all the current UK workforce were at risk!

It said many people were not saving enough for their retirement years, did not think pensions were a good deal and thought charges were too opaque.

Yet the picture does not have to be so gloomy. With good, independent financial advice it is possible to make sure your money and/or assets are working as hard for you as they could be so you can make the most of your retirement.

It’s my belief that it’s never too late to look at boosting your retirement income – especially if you do see yourself holidaying or simply enjoying a few luxuries in your golden years.

Whether you’re in your 30s or already retired, an independent financial adviser will be able to help you with sound retirement planning that matches your particular circumstances.

Far better, in my book, than facing that ‘bleak old age.’

Buying your own premises – a tax-efficient way

Using a pension plan to buy your own business premises and save on tax is an idea that strikes me as making great sense all round.
You’ll need to speak to a good tax accountant and take their advice. Here is a way to use a Self Invested Personal Pension Plan to assist with the purchase.
How does it work?
The pension plan has a fund of money that is converted to cash and used by the pension fund trustees to purchase the
commercial premises. Because the pension plan can also raise a mortgage of up to 50% of the cash fund value, you can buy property costing 150% of the fund value.

  • The business pays rent to the pension fund and receives tax relief on the rent paid.
  • The pension fund pays no tax on the rental income.
  • If the property increases in value the pension fund pays no Capital Gains Tax.
  • On retirement the property can be sold and the amount raised could be converted into a retirement annuity, this will generate a secure income for life (though this would be taxed as earned income).
  • Alternatively, the property can remain in the pension fund and still receive tax-free rent from any new tenant. The client, as owner of the pension fund, can then derive an ongoing income through what is known as a pension drawdown plan.
  • The property is protected if the business goes into liquidation.
  • Heirs can inherit if the owner dies early.

Altogether, this could be a very tax-efficient way to purchase business premises.

Why not talk to your Independent Financial Adviser for more innovative ideas on pensions, property and tax?

Who should pay for Long-Term Care – the state or the elderly?

I was very gratified to see that the Dilnot Report into funding care for the elderly has been much in the news since it was issued on 4 July and looks like it won’t be swept under the carpet by the Government. Previous administrations have quickly buried reports urging the state to fund a bigger share of Long-Term Care Fees so the burden on the elderly and their families is reduced.

Economist Andrew Dilnot recommends:

  • Allowing a person to keep assets of up to £100,000 before they have to fully fund their own care, rather than £23,250 as now.
  • Capping lifetime contributions to social care costs to between £25,000 and £50,000, with £35,000 preferable.
  • People contributing a maximum of £10,000 a year to their food and accommodation costs whilst in residential care.

In my experience very few elderly people or their families have any knowledge or experience in arranging care or, just as important, how to fund it. The report suggests local authorities could take a key role in pointing people to suitably qualified Financial Advisers
for much-needed financial advice. This would be a breakthrough, as council and GPs have been reluctant to do this in the past.

One of the best places to find a suitable Independent Financial Adviser is on the website of the not-for-profit Society of Later Life Advisers whose rigorously vetted members specialise in this subject:

A real boon would be the return of pre-funded Long-Term Care funding contracts, which UK financial institutions will hopefully offer again if the Dilnot Report is implemented. That would greatly assist the public in planning for a comfortable and stress-free old age. Watch this space for more information.

Beat the OAP poverty trap

How do you envisage your retirement? Putting your feet up with a good book in the comfort of your snug home – or gallivanting around the world on a later-life Gap Year?

I know what I have in mind (give me a call and I’ll tell you!), but how grim it is when reality bears no comparison to these dreams.

I was struck by a recent report highlighting how OAPs are unfairly penalised by inflation.

According to an analysis by the Institute for Fiscal Studies, a typical pensioner is facing an annual rise in the cost of living of 4.6%  compared to a “real” inflation rate for the young of just 2.9% and an average of 3.5% for all age groups.

How can this be? It’s largely down to the fact that the retired are particularly badly hit by the doubling of fuel bills in the past decade. On the other hand, they get little benefit from the recent plunge in mortgage costs because most have already paid off their home
loans. For me this underlines the importance of preparing properly for the financial imperatives of retirement. I’d advise thinking hard
about the two important aspects to pensions planning. Firstly, selecting the right type of retirement pension for your circumstances, and secondly, seeking ongoing investment advice so your pension fund continues to deliver the income you want.

Independent financial advisers can arrange pensions in line with your retirement income expectations, monitor progress and manage their return on investment  – all from an honest, unbiased viewpoint.

And just as it’s never too early to start saving,  it may be never too late. With the right strategy, that retirement idyll (be it book or beach BBQ) could be within reach.

The lessons of Southern Cross

I’m finding it heartbreaking to see the fear and dismay of families whose loved ones are residents in Southern Cross care homes.

To those living in long-term care, stability and continuity are paramount. Familiarity is so important, as is trust in their carers and confidence that life will bring no unexpected upheaval.

Instead, the 31,000 residents in the company’s 751 care homes and their families are facing months of uncertainty and the prospect of worrying disruption as some homes are to be closed and staff sacked.

The plight of the residents of Southern Cross, the UK’s largest care home provider reeling from half-year losses of £311 million, reminds us how important it is to make sure we have financial plans in place to ensure stability and continuity of care for our elderly relatives.

Without proper planning, families can find they run out of money when trying to fund long-term care, meaning a loved one has to move out of a home in which they have been comfortably settled.

Sometimes it’s a case of unlocking local authority funds to which you may be entitled – but which councils may tend not to shout about.

Sometimes it’s a case of finding creative ways to realise family assets, such as through equity-release mortgages.

From my own personal experience, I know how important this is. I’ve been advising families for 30 years and I arranged care for my own elderly parents.

Because of my work as a volunteer with charities such as the Alzheimer’s Society and in-depth training with Age Concern, I’m now one of very few financial advisers locally with this specialist knowledge.

Long-term care funding requires sensitivity, empathy and expertise. Advice from an independent financial adviser is highly recommended.

Bank admits ‘guarantee’ is not guaranteed

According to a recent press article*, Santander has written to some of its customers to admit that it cannot actually guarantee one of its ‘guarantees’, and that these investors may not be covered by the Financial Services Compensation Scheme.

The bank has run into trouble over two specific ‘structured products’ marketed between 2008 and 2010. (And if you’re wondering what on earth a ‘structured product’ might be, I’m right with you in having little truck with such gobbledygook.)

Santander has now explained that its marketing of these products as guaranteed had been misleading and has removed the word ‘guarantee’ from its literature. The problem arose because savers would not have been covered by the FSCS if Santander went bust – but the marketing material hadn’t made this clear.

Quite frankly, I have never been completely comfortable with the makeup of ‘structured products’ and have never recommended them. They are definitely, in my opinion, NOT for the risk-averse investor and the word ‘guaranteed’ should be taken with a pinch of salt.

Anything marketed as ‘guaranteed’ should be thoroughly investigated before you buy. For example, who is underwriting that guarantee, and what are the terms under which it would be triggered?

To ensure your investments are protected and to reduce the chances of your money being lost, we urge potential investors to seek expert advice before they commit to investments of this nature.

Equitable Life, Keydata, the High Street banks … the list of debacles goes on!

*The Daily Telegraph (13/3/11)


Are cash ISAs a bad deal

It’s the time of year when we are bombarded with advertisements about cash ISAs, each promising the best deal for savers. Yet I’ve been asked by a number of my clients whether these ISAs are worth pursuing at all.

People who have the bulk of their savings in cash ISAs or on deposit are realising that cash is not keeping pace with inflation and, in a lot of cases, is not even making 1% in interest.

With inflation at 4%, the average household has to spend an extra £1,360 a year just to maintain their standard of living, compared with only 12 months ago.

In a recent survey for watchdog Consumer Focus, more than 80% of cash ISA holders were found to be earning less than 0.5% a year on their savings.

So clients are asking if they should look at other ways to invest, in order to beat inflation. What they are considering is a fairly low-risk strategy on the stock market in
collective investments to aim for modest returns of 6 to 8% per annum over the medium to long term.

Now, they know that the stock market is risky, and I understand that it can seem a daunting step when you’ve always kept your savings in the bank. There are options, however, which match this cautious approach.

Some of my clients prefer to take a modicum of risk rather than letting their funds stagnate and let the banks and insurance companies reap the bulk of the returns.

It is important to find an independent financial adviser who listens to your concerns and searches out the best solution for you; someone with a sympathetic approach.

At Gordon Tate Associates we are committed to helping our clients make the most of their money.