Failing to predict the recent drop in pension income in their pension planning has trapped a third of pensionable workers, preventing them from retiring as planned, according to a report just published by Heartwood Wealth Management*.

The findings have led to a call for workers to begin their pension planning earlier, and treat pensions saving as ‘a 40-year engagement’.

Heartwood’s research revealed that nearly half of those aged 65 and over are planning to continue working until at least 70, but that most of those (29%) would prefer to be already retired, and are working because they cannot do without the money.

There are 3 main reasons why these over-65s believe they could not live on their current projected pension incomes:

- A third (32%) cited a fall in the value of their pension

- 27% blamed the higher cost of living

- 24% said they were still giving financial support to their children

- 8% were working to meet the rising costs of their medical care

“While the Government has chosen to position ending the Default Retirement Age as a victory for older people against age discrimination, the sad truth for many is that they’re not working through choice, but because they can’t afford to stop,” said Simon Lough, Chief Executive of Heartwood.

“While the current crop of working 70 year olds is still in the minority, this trend will rapidly spread through younger generations.

“ The only way to avoid being forced to continue working is to start saving earlier, and treat retirement planning as a 40 year engagement.”

Recent information from Moneyfacts showed that plunging annuity rates now give workers half the pension income they would have received from their pension savings 15 years ago.

*Survey for Heartwood by ICM of 450 adults aged 64+, July 2010

Almost 17 million working people (48% of workers) with a pension plan in place have never reviewed their pension plans, while only 21% have taken a pension planning review in the last year*.

Of those who have carried out a review of their pension planning, 38% opted for the default option offered to them by their lender, and 19% of these said that the explanation of how their funds would be invested was either poor, or not explained at all. Most alarmingly, 18% of people had made their allocation decisions on their own, acting without pension advice to decide how the funds in their pension plans would be invested.

A further 33% of those who had taken part in a review of their pension plans were unable to say whether or not they had simply chosen the default option offered to them.

Of those who admitted not knowing how their pension was invested, 1 in 5 were approaching retirement, aged 55 or above.

Given that some of the largest investment funds in the UK have underperformed, failing to meet their benchmarks for performance in each of the past 3 years, many pension savers who neglected their pension plans are likely to have lost out on potential pensions income they would have received, if their savings had been reinvested in better funds.

The research also explored who UK pension savers turn to for pension advice.

The largest group (33%) of those who did seek pension advice went to an independent financial adviser, while 10% indicated they turned to their bank manager.

One alarming fact to emerge from the report was that 13% of pension savers listen to unqualified advice on their pension plans, from a friend or family member. 

*Research for Baring by ICM Research, covering 1478 non-retired UK adults, July 2010

Over two-fifths of larger companies in the UK are looking at ways of reducing the cost of their company pension schemes, in a move which could adversely affect pension provision and pension income for employees.

The news reflects a general trend towards reduced commitment to company pension schemes throughout the private sector, and underlines the need for employees to seek quality pension advice on their retirement planning and projected pension income.

The Association of Consulting Actuaries has interviewed top executives at over 200 employers with company pension schemes, and found that 41% of them believe they are ‘highly likely’ to cut the cost of their company pension scheme, after the launch of the National Employment Savings Trust (NEST) from 2012.

NEST is the government-backed initiative to make company pension schemes widely available through all companies, and under current proposals will be gradually introduced on a phased basis from 2012-2017.

While there are suggestions that the scope of the NEST scheme may yet be modified ahead of the 2012 launch date, several elements in the plan, as it stands at the moment, are a source of concern for employers.

All employees are to be ‘auto-enrolled’ into the company pension schemes that must be put in place to meet the requirements of the NEST. Only after auto-enrolment can those who do not wish to contribute to the company pension scheme leave it, by actively ‘opting out ‘ of NEST. This strategy is designed to combat the tendency of individual employees towards ‘pensions inertia’ by forcing them to opt out, rather than opt in, to their company pension scheme.

For UK companies with a company pension scheme already in place, pensions uptake is on average 55%, and is predicted to reach over 80% after the auto-enrolment process. This will impose significant additional administrative costs on all company pension schemes.

The Association of Consulting Actuaries also found significant opposition to several other requirements with the NEST scheme. Their results revealed that 64% would like the removal of rules on employees who opt out, requiring that they be re-enrolled every 3 years.

Furthermore, 75% of employers oppose the requirement that employees with less than 3 months’ service should also be auto-enrolled. This would force the enrolment from day one of new employees, who may be in a probationary period with the company, and would also force companies who use short-term seasonal workers to include them immediately in their company pension scheme.

While the website identified pensions and retirement advice and investment and savings advice as the two main drivers overall in the advice market, demand for mortgage advice had shown most growth.

Demand for mortgage advice was up 24% in the first 6 months of 2010, compared to the same period last year. This gave a total of 45,000 mortgage advice seekers using the ‘whole of market’ approach of independent financial planners to find the best mortgage deal, and compared with 36,000 mortgage advice enquiries in the first half of 2009.

Over the year to June 2010, a third of demand (32%) for independent financial advice related to personal retirement planning, according to unbiased.co.uk.

In the same 1-year period, a quarter (25%) of enquiries for financial planning advice related to investments and savings.

The remainder of enquiries independent financial advices focused on personal stakeholder pensions (7%) and tax planning (7%), personal protection and insurance (5%), investment trusts (3%), equity release (3%), and saving for children (3%).

“We believe that the tumultuous period we have been through has led to more people seeking expert advice on their mortgages rather than going it alone,” said Karen Barrett, chief executive at unbiased.co.uk.

Did you know that your spouse can use their tax-free allowance as part of your financial planning, by making up to £6,475 of your household income tax-free, every year?

With just a little financial advice, your spouse’s personal tax allowance offers a perfectly legitimate opportunity for avoiding tax, within your general financial planning.

Every one of us has a personal tax allowance of £6,475 which applies to all income, whether it comes from working or from savings. This also applies to your spouse, even if they are not working.

Why let this allowance go to waste? The allowance can be used to avoid tax on interest in a bank or building society account in their name.

Here are the simple steps to achieve this.

First, transfer your savings into an account in the name of your non-working spouse. Then fill in an R85 form for the Revenue. Once that’s done, the bank or building society will add the interest to the account without deducting tax.

This also applies if your savings are already in a joint account in both your names. Fill in the R85 form, and any amount you earn in interest, up to £6,475, will be free of tax.

The principle can also apply if your spouse is working part-time, but using only part of their tax-free allowance. You could still get the benefit of the rest of their allowance, by holding the savings in their name.

Even for working spouses, savings can be made where one spouse is paying the basic 20% rate of tax, but the other is a higher-rate taxpayer who pays 40%.

If you have taxable income from other sources, including investments, that are in the name of the higher earner and therefore subject to 40% income tax, they can be transferred to he lower earner, so that any taxable income would be taxed at just 20%.

Contact Principle First for further strategies for using your tax allowances efficiently to avoid tax.

Make an online financial advice enquiry or ring freephone 0800 678 5929 now.

Many of those buying pensions annuities to turn their pension savings into a regular income could have increased their pensions income for life by up to 20%. Pensioners in less than perfect health, who would be eligible to buy an enhanced annuity, could be missing out on as much as 30% of their potential pension income, by not seeking advice.

Specialist pensions law firm Sackers has pointed out that anyone who was not made aware of their right to shop around for their pension annuity – which is known as their ‘open market option’ (OMO) – could now be eligible to make a legal claim for compensation from pensions providers or the trustees of pension schemes.

There is an obligation on pension companies to inform customers of their open market option, as they approach retirement age. However, a report by the Financial Services Authority found that nearly 40% of pensions providers fail to make it clear enough to customers of their right to shop around. As a result, many of those retiring take the first pensions annuity offered to them, which can be an inferior annuity from their pensions provider.

A spokesman for Sackers said that while pension scheme trustees are not obliged to offer members financial advice themselves, they should advise members to get independent, unbiased financial advice elsewhere. Where they do not, and the member suffers a loss of pensions income as a result, there could be a case to answer, the company said.

The Office of Fair Trading (OFT) has launched a consultation document on how to protect consumers in the online age. The implications of the discussion emphasise the need for independent, unbiased financial advice to guide consumers on funds investments or purchases of life and critical illness insurance products online.

Earlier this year the Association of British Insurers (ABI) pointed out that consumers buying life and critical illness insurance and other insurances online, rather than with financial advice from an independent financial adviser, run risks in several key areas.

Principally, insurance companies rushing to provide a ‘quick quote’ online may do so without fully evaluating the circumstances and situation of the customer. Some providers make certain assumptions  about the customer, which can be inaccurate or incorrect. The customer, for their part, may have little understanding of the life cover or critical illness insurance policy they are buying.

One specific concern of the OFT is ‘targeted pricing’. Customers can feel seduced by attractive special offers on some life and critical illness insurance policies offered online. However, it may not be clear which of these are included as standard, and which are optional ’add-ons’ that come at extra cost.

Financial advice can also help a customer navigate the sometimes complex maze of terms, conditions and exclusions of life policies, but in particular of critical illness insurance. A simple mistake at the application stage can reduce or void critical illness insurance claims, later on.

Other factors the OFT will consider to protect consumers may include clarifying the levels of protection available for consumer-to-consumer sales, checking on non-compliant websites, and strengthening payment systems for online purchases.

Retirement planning, pension planning, and annuity advice were by far the most popular topics during June 2010, among consumers seeking independent financial advice from financial planners online.

The changes in the June 2010 budget were undoubtedly spurring consumers to think ahead, she said, and reevaluate their financial plan with the help of independent financial advice. “Retirement planning in particular is a vastly complex area and only an independent financial adviser can look at all the factors relevant to an individual and their circumstances and recommend the best solution for them.”

A further quarter of consumers seeking help with their financial plan searched for independent financial advice on savings and investments.

In a sluggish market, mortgages accounted for just 11% of requests for independent financial advice. Within that, for those seeking independent financial advice on homebuying, first time buyer mortgages accounted for 36% of enquiries, while 32% of online enquiries targeted independent financial advice on remortgages.

The value of independent financial advice in building your financial plan was summed up by Karen Barrett, chief executive of unbiased.co.uk.: “Financial advice is an area that can be daunting for consumers, many people who may have previously relied on their bank or building society for product advice are now realising that this didn’t necessarily give them exposure to the best product for their individual circumstances.

Seeking independent financial advice on your financial plan from properly qualified financial planners was ‘an invaluable step in making sure you are getting advice from across the whole of market, with no ties to certain product providers,” she said.

Recent research by Google showed a marked increase in online searches for independent financial advice, which rose by 19% in 2009 alone.

Many funds are available through third-party distributors known as ‘platforms’, who attract new investment for the funds by distributing them, via IFAs, in return for a fee. Press reports have suggested that some platforms are providing additional ‘shelf space’ to certain fund managers, by featuring them on preferred lists, or providing them with higher visibility online.

The standard fee for such services is 0.25% but some platforms are allegedly receiving additional payments from funds managers that can take these payments to 0.4%.

The reports have emphasised that only financial planning advice from an independent source can properly measure funds performance and fees, and provide customers with a genuinely balanced view of a funds or investment product.

The need for good, objective funds analysis has never been greater. The number of underperforming investment funds (so-called ‘dog funds’) has risen rapidly due to the recent stockmarket slump and in March 2010 there were 90 such funds on the UK market, up from 77 in October 2009. Some of these funds were among the largest in the UK, by assets under management.

It is therefore essential to seek independent financial advice from a company with a fund analysis capability, which provides advice based on first-hand analysis of a fund’s investment weightings and an objective view of the quality of management of the fund.

As a chartered financial planner, Principle First is among the top ranking of independent financial advice in the UK and offers a portfolio analysis service for those with existing funds investments, as well as analysis-driven independent financial advice on funds and the Principle First range of funds portfolios to suit all risk profiles.

You can obtain independent financial advice on funds and investments by making an investment enquiry online or by ringing freephone 0800 678 5929 now

In general, the drive of the FSA guidelines is to limit the number of homeowners who eventually find themselves in difficulty keeping up with their mortgage repayments.

By ensuring that the financial planning advice offered to those buying a mortgage comes only from fit and proper persons, such as a chartered financial planner or other qualified provider of financial advice, homeowners can be more certain of taking on mortgage repayments that will be sustainable and manageable in the long term.

The benefits of independent financial advice were proven in a report by the Association of Mortgage Intermediaries (AMI) which stated that independent mortgage advice will save the average mortgage holder £962 per year in mortgage repayments.

This is because an independent mortgage adviser can take a ‘whole of market’ approach, comparing all mortgages on the market, to the best deal for the customer. Equally, independent remortgage advice will also identify whether staying with the existing lender or moving to a new deal is in the best interests of the customer. An adviser employed by or affiliated to a single lender, on the other hand, can offer only their own in-house range of mortgage deals.

The FSA’s guidelines also cautioned mortgage holders who are considering using ‘sale and let back’ companies to free up capital in their homes, by selling their home but continuing to live in it as a tenant. The FSA recommended security of tenure for sale-and-let-back customers for at least 5 years, and a 14-day ‘cooling off period’ for those opting to sell their home under such arrangements.