Lowes Magazine Issue 123


Pension saving in hard times

recover you will then have more units in the market to benefit from the rise. By reducing or stopping payments you lose this opportunity to create greater wealth for your future. Continuing to contribute to your pension throughout the hard times also means your fund can recover more quickly from the market downturn. As you can see, this can really benefit your long-term savings strategy. And, because pensions may be passed on to beneficiaries with substantial tax benefits, pensions also feature in estate planning. Of course, for short-term financial reasons, it may not be possible to continue paying into your pension at the same rate but please consider the above and talk to Lowes before you take any action, as we may be able to find alternative strategies for your personal situation. Retirement living standards The Pensions and Lifetime Savings Association (PLSA) has devised the Retirement Living Standards, designed to help savers picture the lifestyle they want in retirement and understand the costs. The standards cover a range of goods and services that are relevant for the majority of people across three different levels – minimum, moderate and comfortable retirement. The standards calculate that a single person will need to spend about £11,000 a year to achieve the minimum living standard, £21,000 a year for moderate, and £34,000 a year for comfortable. For couples, it’s £17,000, £31,000 and £50,000, respectively. The figures are updated yearly to reflect the changes in the prices of goods and services bought by those in retirement. While they are rough guides only they can be a useful tool when reviewing our pension provision and assessing whether we need to increase our pension payments.

PENSIONS, LIKE ANY OTHER KIND OF SAVING THAT includes investment, can be subject to the vagaries of the investment markets. This can be particularly apparent for ‘defined contribution’ personal pensions and self invested personal pensions (SIPPs), where investments are selected by the individual, rather than final salary (defined benefit) pensions which are invested by the pension scheme investment managers. When markets are tumbling, coming out of the market by stopping pension payments may seem like a good tactic, as we don’t want to see the money we are paying in make immediate losses. Pension payments can also suffer when times get hard, because as long-term policies, it can seem easier to reduce our pension contributions, or even stop them altogether, as a temporary measure with a view to restarting them in the future. There are a number of sound reasons why you should continue to pay into your pension during periods of market volatility or when times get tough. First, human nature being what it is, restarting our investments can be a lot harder than stopping them. Spending money can be much easier than saving it. That’s simple behavioural science. Since pensions are long-term investments – we cannot access our pensions until age 55 (at present), they are designed to benefit from many years of investment accumulation, with each year’s performance gains being invested in subsequent years, helping to build our wealth faster. Pensions also benefit from tax relief from the government at the investor’s marginal rate of tax. For example, a standard rate tax payer paying £80 into their pension will receive a £20 uplift on their contributions. Higher rate taxpayers will benefit from their higher marginal rate. This relief is important in helping to build wealth within a pension year on year. Then there are investment maxims to consider. Investing when markets are down means you are buying more units for the same money because the price is lower. When the markets

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