News/Events

New ways of increasing retirement income [19th June 08]

It seems we are always being told to eat more healthily, take more exercise and consider the planet's future in everything we do. That way we can live to a ripe old age. But even if we do hope to continue way past that 'three score and ten' how can we make sure we can afford to do so?

Many of life’s safety blankets are being eroded. We are told to expect a drop in the value of our homes, the traditionally safe as houses savings in a bank or building society no longer seems to be quite as safe and the stock markets really don't seem to know what to do.

Thankfully the world of financial planning is being as ingenious as ever – with a little help from the other side of the Atlantic. In a place where state help is not something that can be taken for granted the markets have developed products where a consumer can plan their future with a little more confidence.

One idea that has recently made it across to these shores helps to provide more certainty of the level of income that can be provided at retirement. For those approaching retirement within the next few years some consideration needs to be given now to moving their accumulated pension fund into a more cautious portfolio. The downside is of course that a lot of investors will have seen considerable falls in value over the last twelve months, which has lead many to remain fully invested in equities in the hope of regaining some of the losses when the market moves forward again. The risk is that whilst the fund remains invested in real assets such as equities, bonds and property further falls could be experienced.

Help is now on hand. This new breed of retirement plan can ‘lock in’ the fund value as it stands preventing any further falls, and then as and when the value starts to rise an annual review can reset the ‘lock in’ value to take account of some, if not all, of the rise in value.

An additional benefit is that it is possible to work out what the minimum level of pension will be at retirement, something that has been very hard to do with personal pension planning in the past. And as the fund value grows so does the minimum income level.

For those already taking income drawdown from their pension plans the worry is that when investment values fall a higher percentage of capital is required to support the income taken. If the fund value is depleted over time the level of income available may fall as well, when the mandatory review is made.   The guaranteed minimum level of income mentioned above would mean that even if the fund value gets completely eroded the income will continue for life. The beauty of the personal pension system is that even if you already have a plan it is more often than not possible to transfer to another provider which offers these guarantees.

Your retirement income is not something you want to mess about with or leave to chance. As always, speak to a financial adviser who is qualified to advise on retirement planning and who has access to the whole of the market. That way you can be sure of getting the right plan for your needs.

This article was written by Langtons - Published in the Western Morning News, Money, 19th June 2008