Essentially Wealth Q4 2022 ISSUE 26
The latest pension news from one of our partners.
If you require any further pension advice please contact us using the contact us box at the end of the article.
In this issue:
- Your financial wellbeing hub
- Pausing pensions could be costly
- Helping family with living legacies
- Looking to retire early?
- Learning to control your investment emotions
Your financial wellbeing hub
By pulling together during the pandemic, we have managed to overcome many challenges and get through an extraordinarily difficult period of time. As we emerge into the post-COVID economy, we face a different set of challenges which, in their own way, appear no less daunting. One thing remains constant – we’re still here, by your side, offering support in uncertain times.
New economic challenges
Although the economy did begin a tentative recovery last year and into the early part of 2022, it’s fair to say the outlook has become increasingly challenging in recent months. Our spending power has been curtailed by inflation and, with energy bills rising, the cost-of-living squeeze looks set to continue for now. Higher-than-expected inflation has also triggered a rise in interest rates, while fallout from the war in Ukraine adds to a cocktail of economic uncertainties.
Planning is key
No one is immune from these difficulties; while some will struggle more than others, we will all be impacted to some degree. Times like these serve to emphasise why people seek professional financial advice in the first place. There will inevitably be economic downturns but having a sound, structured plan helps to ensure our financial goals and aspirations are not derailed when that occurs.
Financial wellbeing
Sticking to your financial plan is a good way to protect your financial wellbeing. It’s therefore essential to try to maintain any ongoing commitments such as pension contributions, protection premiums and regular savings policies if you possibly can.
It’s also vitally important to keep talking. We’re here for both you and your family; ensuring your financial wellbeing is, and always will be, our prime concern.
Pausing pensions could be costly
Analysis1 has revealed that stopping or reducing pension contributions, even for a relatively short time such as a year, can have a significant impact on your final pension pot, with savers potentially being thousands of pounds less well off in retirement.
Choosing how to cut back
Almost all (93%) of those who responded to the analysts’ survey said they are feeling the impact of increasing costs and inflation. A further 77% expect to have to make cutbacks on saving or spending. However, an encouragingly low figure of 6% said they planned to reduce their pension contributions.
Thinking of the long term
Whilst it might seem tempting to give up or pause your pension contributions, it’s important to consider the impact any breaks in contributions would have on your retirement pot. Keeping your long-term plans in mind and maintaining your savings habit wherever possible will help to keep your retirement planning on track.
1Standard Life, 2022
Helping families with living legacies
Rather than focusing on inheritance as the best way to pass on wealth, over-55s are increasingly looking to help their families out financially during their lifetimes. This trend towards ‘living legacies’ has been revealed in recent research2 and has been in part due to increased life expectancy pushing up the average age at which younger generations inherit from their parents. People born in the 1980s are now predicted to receive their inheritance at age 64 on average, compared to 58 for those born in the 1960s.
The fear of running out of money during retirement has previously prevented many older people from offering financial support during their lifetime. This concern appears to be lessening, however, with a third of respondents to the research saying they’d be unwilling to help a family member onto the property ladder without knowing how much they’d need in retirement – compared to half of respondents to the same survey in 2016.
Aviva’s Matt McGill commented, “This increasing tendency towards considering helping out now rather than beneficiaries receiving an inheritance after death is perhaps a reflection of the turbulence and uncertainty that everyone has been through since we previously ran our survey in 2016, and which shows no sign of diminishing. Along with the hardship people have faced, it’s also been a time of reflection for many and this could have included a resolution to live more for the moment and help family and loved ones now.”
2Aviva, 2022
Looking to retire early?
Are you pondering early retirement? If so, it may seem like an enticing prospect,
but it certainly bears thinking about.
Ask yourself these vital questions:
- How much will you need to live comfortably in retirement?
- Do you have enough in your pension pot to enjoy the lifestyle you want?
- Do you have savings or any other sources of income?
- Do you still have a mortgage or any other outstanding debt you are liable for?
- Could working for a few more years offer you increased financial security?
Concerns over later life poverty
One primary consideration needs to be the financial impact of accessing your pension too early. Research3 shows that doing so before reaching State Pension age could reduce your pot by 59% on average.
Two thirds of people aged 50 to 70 who quit work or lost their job during the pandemic left the workforce earlier than expected4, meaning they may have insufficient funds for a longer-than-anticipated retirement. Those who now want to reenter the workforce are finding it difficult to get rehired. According to research from the Centre for Ageing Better, unemployed over-50s are twice as likely to be out of work for 12 months or more than their younger counterparts.
Plenty to think about
Before acting, it is always a good idea to take financial advice. To carefully consider all of your options, whatever your goals for retirement, we’re here to help you get into the best possible financial position for later life.
3Canada Life, 2022, 4ONS, 2022
Learning to control your investment emotions
If you’re an investor, it can also be challenging to keep your emotions in check when there’s so much economic and geopolitical noise being reported on a daily basis.
It’s highly unlikely that Rudyard Kipling was thinking about investments when he penned his famous poem ‘If’, but his words will resonate with investors. Even for experienced investors, the current investment landscape presents challenges, but those who can keep their head when all about are losing theirs have the best chance of success.
Remember that market volatility is normal and investors who hold a well-diversified, risk-appropriate portfolio and stay focused on their long-term objectives and aspirations are well equipped.
Clarity affords focus
Although plans may need to be adapted from time to time to take account of changes in individual circumstances or investment goals, having a well-thought-out strategy helps investors deal with unexpected events and remain calm when markets become turbulent. Setting clear goals and developing a corresponding plan to achieve them is fundamental.
While it is easy to say that the nature of investing dictates that the value of investments can fall as well as rise, it is challenging for investors to see the value of their portfolios drop during periods of market weakness. Being confident in your plans, staying the course, maintaining a long-term outlook and avoiding knee-jerk reactions are imperative.
It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.
If you require any further pension advice please contact us
