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Pensions

Be fully aware of your options and the consequences of accessing or moving your pension pot

When the rules were relaxed on pension holders having access to their pension pots, an event such as the COVID pandemic and its consequences were not considered. In 2020 figures from the ABI (Association of British Insurers) showed that the number of people accessing their pension as a form of flexible income grew by 56% between April and September of that year.

This example, though caused by an extreme event, illustrates two things. Firstly, how useful it is to be able to access funds when needed, something which would not have been possible before the rule changes, but secondly, that the ease with which the pension pot can be accessed for immediate use or to move to another savings provider is a cause for concern if pension holders are unaware of all the pros and cons.

The government is therefore rightly concerned that whilst accessing pensions pots should be simple and easy to do, it wants pension holders to be more aware of their options so that they are fully informed before moving or accessing their money.

Currently, pension providers are only obliged to tell their customers that free and impartial advice is available from Pension Wise, the service promoted by the government to help individuals aged 50 and over with a defined contribution pension, understand the options available to them.

In new rules which have just been set out, the Department for Work & Pensions (DWP) is proposing that pension scheme managers and trustees make sure the individual has either received or opted out of receiving Pension Wise guidance, before allowing their application to proceed.

Pension schemes would also be required to offer to book a Pension Wise appointment on the individual’s behalf. If the appointment is declined, the DWP is proposing that pension holders will have to formally opt out, before they can proceed to the next step.

The DWP is right to make individuals pause and give them the option to be better informed before taking the plunge. However, when the consultation is complete, it is to be hoped that the final rules will not be too draconian in respect of Pension Wise appointments and end up increasing extra administration costs for pension providers and inhibiting access to funds for transfer or for immediate use.

Calculate how long you can maintain your lifestyle if you were to lose an income.

If you were to lose your income today, how long do you think you could last for?

Legal and General (L&G) recently published their Deadline to Breadline 2020 research, it revealed that the average household is just 24 days from the breadline – this is a lot less than the 90 days that many believe they can be financially stable for should they lose their household income. 

Furthermore, your savings may not last quite as long as you’d expect, with the average household needing savings of over £30,000 to be financially secure and cover their outgoings for a year. 

How many days do you think you could last? There’s some great tools out there to help you find out – try the L&G Deadline to Breadline Calculator to see how long you can maintain your current lifestyle should the worst happen. 

Some interesting facts revealed:

  • 1 in 5 UK households have no savings at all
  • Most households surveyed would give up or cut back on food before their broadband or phone expenditure
  • It takes the average household 14 years to save their gross annual salary and 12 years to save enough to live for a year
  • Those aged 45-54 are most likely to have no savings at all
  • 46% rank losing their income as their top worry if becoming unable to work

The research also suggests that 89% of people don’t see themselves as their largest financial asset. One of the biggest misconceptions is that people do not believe that their income is valuable. The average person earns hundreds of thousands of pounds during their working lifetime – so value yourself, you’re a financial asset worth protecting.

It needn’t be all doom and gloom however – there’s plenty of protection products out there that can assist you – for small monthly fees your income can be protected to give you the peace of mind you need.

Protection products can also be a lot cheaper than you might expect. The Association of British Insurers has put together an easy guide – Percy the Protection Calculator to help share some recommendations based on your individual circumstances. 

We are here to answer your questions and help you find the right protection to suit your circumstances. If you would like to get in touch with us, please use the form at the bottom of this email. We will look forward to hearing from you.

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