Lowes Magazine 117

PENSIONS

SAVING

Cash trap

NS&I rate cut The recent anticipated reduction in interest rates by National Savings and Investments (NS&I) saw the Treasury-backed savings and investments body lose £500 million in the month before the announcement alone, on top of which, post event, a reported 43% of NS&I account holders said they would transfer their cash out as a result of the cuts going through. NS&I savers who want to retain their money in cash, now have to weigh up the guarantee provided by the Treasury (aside from the unlikely event that the UK government were to fail) offering very low levels of interest, with better rates being offered elsewhere. An alternative is to transfer into Premium Bonds and hope to win some prize draws! Financial resilience A financial planning benefit of the pandemic has been to highlight to more people the importance of financial resilience, including having an emergency fund to fall back on. According to a recent survey by Aegon, 37% of people in the UK are now more likely to build up a rainy-day fund than prior to the arrival of the Coronavirus. With interest rates for easy access accounts at a little above zero, putting some cash away in fixed term accounts, for a very slightly better rate, may be tempting. But that can restrict access to the money when the rainy day comes and as such, fixed term accounts are not appropriate for emergency funds. First step in inheritance planning An essential part of estate or inheritance planning is writing a Will. Yet survey after survey shows that a large percentage of adults in the UK have not put a Will in place. It doesn’t need to be difficult or complicated to put your affairs in order by writing a Will and it can prevent significant problems when dealing with your estate. Not doing so can see property, financial and other assets given to someone you may not have chosen when you die.

State Pension Age now 66

THE CORONAVIRUS PANDEMIC HAS SEEN BILLIONS OF pounds paid into cash accounts since the initial lockdown in March 2020. This is in part due to those fortunate enough to have retained an income finding their expenditure has reduced – such as from not having to travel to work, less spending on clothes, holidays and nights out etc – so having spare cash they are able to save. This is both good and bad news, as whilst cash is considered a ‘safe’ investment, with interest rates at record lows and generally below the current level of inflation, it is in fact sitting there losing its spending power. This situation is likely to get worse as the impact of the Coronavirus pandemic on the UK economy means that interest rates are highly unlikely to be raised any time soon, while inflation may well rise as the economy recovers. This means holding onto cash for too long, or in place of assets which are growing over time, can see savers continue to lose money when they could be making it by investing in stockmarket funds. Worryingly, reports and surveys also suggest the influx of money into cash accounts includes a large amount moved out of investments into cash following the February/March stockmarket falls, with individuals surveyed saying they would wait until markets have recovered by a set percentage before they reinvested. These investors will have locked in their losses by being out of the market when the recovery in asset prices occurred, instead looking to buy back in when prices could be much higher – a classic DIY investor error. Whilst generally we recommend holding several months’ worth of expenses in cash in an emergency fund, we believe utilising stockmarket based investments – primarily collective funds and structured products – is essential to grow wealth, especially in the current environment.

FROM 1 OCTOBER 2020 THE STATE PENSION AGE – the earliest age at which an entitled UK individual can claim the pension – became 66 years. To receive the full State Pension an individual must have paid National Insurance for at least 35 qualifying years and be 66. We know that further age increases are planned for the years ahead, as government seeks to balance the cost of maintaining the State Pension with increased longevity in the UK. The State Pension Age will gradually increase to 67 between 2026 and 2028, depending on a person’s date of birth but it will be reviewed at least once every five years. The increases in age are to better reflect the demographic changes in the UK population, as people are living far longer now than when the State Pension Age was set at 65 in 1945. At that time the average life span for a male was 70 years. The government also has changed the way in which the increase in State Pension Age is phased, so that rather than reaching State Pension Age on their birthday, people will reach it at 66 years and a specified number of months. It is important to note that the State Pension is not paid automatically, it has to be claimed. The Government will send a letter with specified options a few months before the age at which you can claim. Also, claiming the State Pension can be deferred. Putting back receipt of the pension means an individual can receive higher payments when they do claim in the future. There is a State Pension Age calculator on the www.gov.uk website.

Pension access age rises to 57 Lowes Consultant Stephen Hoggarth

says: Alongside the rise in the age at which individuals may claim the State Pension, the Government has confirmed that the pension freedom age, that is the age at which someone can access their personal pension, will be increased from the current age of 55 to 57 from 2028. There are several reasons for this, including: 1 It ties-in with the two year rise in the age at which an individual can claim the State Pension. 2 It also reflects increases in longevity in the UK. 3 Pensions are intended for funding retirement and the government wants to ensure pensions savings provide for later life income. With this change now confirmed, it is important that anyone who will be 55 at the cut-off point in 2028 (the exact date has yet to be confirmed) who was intending to draw on their pension from that age, now starts to make alternative plans to fund the intervening two years. Increased ISA saving is one option, not least because these vehicles are also free of income and capital gains tax. If this is of concern to you, please talk to your Lowes Consultant or call us on 0191 281 8811. We are here to help.

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