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Mowatt Financial Planning

Monday, 23 January 2012

It pays to shop around!

Buying an annuity with your pension fund is an important decision. The problem is that not enough people consider their options and make sure they get the right annuity for their situation. Clearly one factor is making sure that you get good value when you but an annuity. MGM Advantage, a retirement specialist company, have just published the findings from their Annuity Index.

The index shows that annuity rates have been falling since 2009. This means that the income that you could get from your pension has fallen over this period. The actual fall in the index from June 2009 is 9.3%.

The tables below shows different comparisons of the income available from a pension pot of £50,000.

Table 1


Average standard annuity (per annum)

Average enhanced annuity (per annum)

Percentage difference

Difference over the first 5 years of retirement

Difference over an average retirement

Men

£2,929.17

£3,560.93

21.57%

£3,158.80

£10,739.92

Women

£2,771.46

£3,357.43

21.14%

£2,929.85

£11,719.40


An enhanced annuity is essentially an annuity where the amount of income takes account of factors such as lifestyle and medical conditions. As a result the amount of income is higher (enhanced). Obviously the enhancement will depend on personal circumstances but the table shows the importance of checking to see whether you are eligible for enhanced terms or not.

Table 2


Top quartile average rate (per annum)

Bottom quartile average rate (per annum)

Percentage difference

Difference over the first 5 years of retirement

Difference over an average retirement

Men

£3,237.56

£2,711.26

19.41%

£2,631.50

£8,947.10

Women

£3,038.56

£2,500.30

21.53%

£2,691.30

£10,765.20


This table shows the comparison of a top quartile rate against a bottom quartile one (no enhanced terms). If your pension is with a company whose annuity rates are not competitive, you are in danger of losing out on a significant amount of income. When you decide to buy an annuity, you don't need to buy it from the company who is managing your pension. In fact it is vital that you shop around to see if you can get a better deal.

Table 3


Top quartile average rate (per annum)

Bottom quartile average rate (per annum)

Percentage difference

Difference over the first 5 years of retirement

Difference over an average retirement

Men

£3,943.47

£3,035.54

29.91%

£4,539.65

£15,434.81

Women

£3,644.64

£2,923.68

24.66%

£3,604.80

£14,419.20


In this case, the comparison is similar to Table 2 but is based on an individual who qualifies for enhanced terms. Once again, the table shows the importance of shopping around.

These tables provided by MGM Advantage show the importance of shopping around when you are buying an annuity with your pension fund. There is no reason to not seek out the best rate and make the most of your pension fund.

Please contact me on 01347 868196 or via the website if you would like to discuss any aspects of this article.

Wednesday, 18 January 2012

Inflation

The latest inflation figures from the Office of National Statistics show that inflation in December has fallen. The CPI has fallen to 4.2% from 4.8% in December and the RPI has fallen to 4.8% down from 5.2%.

The biggest downward contributors to this change are petrol, gas and clothing with the only upward pressure being from landline and mobile phone charges. Of course prices are still going up, only not as quickly.

We can expect a further fall in January when the effect of the VAT increase has been included for a full year.

Thursday, 12 January 2012

New Year Resolutions

It’s estimated that more than 26 million Britons will be making New Year resolutions this year. If you are one of them, you will probably have made yours by now. However, making the resolution is one thing but actually sticking to it is quite a challenge. Typically 86% fall within the first 6 months and 41% are broken by the end of January.

According to a survey carried out by GoCompare, sorting out our finances is the most popular resolution for 2012; overtaking perennial favourites such as “losing weight” and “getting fit”. Nearly half of Britons (49%) say that sorting out finances/reducing outgoings is their top resolution ahead of Getting fit/taking more exercise (46%) and Losing Weight (45%).

A separate survey by first direct looks at the Biggest Financial Regrets and the table below shows the top 3 regrets for the 2011 and 2010 surveys.

2011


2010


Not saving enough

52%

Not paying off more of my debts

53%

Not paying off more of my debts

33%

Not paying into a pension

37%

Not paying into a pension

13%

Spending too much on run up to Xmas and gifts

18%

Your own circumstances will determine whether you are more interested in paying off your debt quicker or saving more. They are obviously linked as reducing or getting rid of debt should free up some of your income to allow you to save more. The sharp rise in people regretting not saving enough is probably linked to the continuing poor economic climate. It maybe that action already taken in paying off debt and spending less on gifts has reduced the number of people with regrets in these areas in 2011.

The fall in people regretting not paying into a pension is surprising. I can’t believe that much has actually changed between the two surveys although maybe some of this regret is included in the not saving enough category.

Moving on from this, the first direct survey also asks the areas of their finances that Britons are most unhappy with. Again the top 3 in 2010 and 2011 are shown in the table below.

2011


2010


Not taking advantage of tax free investments

87%

Credit card and loan debt

82%

Credit card and loan debt

84%

Pension provision

80%

Pension provision

82%

Not taking advantage of tax free investments

79%

Clearly there is a link with the previous table between not saving enough and not taking advantage of tax free investments. Again pensions are high up on the list as well as paying off credit card and loan debt.

Having a financial plan is a clear way of helping achieve a New Year resolution based on sorting out your finances, whatever that means in your particular circumstances. Typically a financial plan will start with your current circumstances: assets, liabilities, income and outgoings and will look at the actions which you will need to take to achieve your goals.

At the start I mentioned that the majority of resolutions fall in the first 6 months. One way of improving the success of your resolutions is to share them with a family member or a friend or a third party. In the case of your financial plans, a financial planner is in the ideal place to help with your resolutions and make that commitment much stronger.

If you would like to have a chat about your finances please give me a call on 01347 868196.

Best wishes in 2012.

Wednesday, 21 December 2011

December newsletter

The December newsletter is now available looking at the performance of different asset categories over the last 12 months.

Wednesday, 23 November 2011

Financial Planning Week - Retirement

The survey results today give some worrying indications of retirement planning in the Yorkshire region:

Over half (52%) of people in the Yorkshire region are not confident that they’ve saved enough to live comfortably when they retire, compared to 47% nationally.

Looking ahead to what age the panellists in the region think they will be able to afford to retire, 13% think they will “never” be able to compared to 10% nationally.

Retirement planning is about balancing “jam today” with “jam tomorrow”. Understand the right balance for you – not thinking about it risks jeopardising your future lifestyle and gives you less control on the choices which you have. Retirement is a significant milestone in your life which merits careful planning.


Develop a financial plan to help you get the balance right. This will give you confidence about what you need to do to have the retirement that you want, when you want.

Tuesday, 22 November 2011

Financial Planning Week - Saving

Based on the survey carried out by the Institute of Financial Planning only 18% (less than one in five people) in the Yorkshire region believe that they are saving enough or more than enough for their future needs.


Regular savings is a great habit. If you already have money left over at the end of the month then it should be easy to start. If not, then see if you can create some room by finding some cost savings or by giving up something that you won't miss too much. It’s often easy to start off with a small amount and save regularly, over time it is surprising how this can build up.


Depending on your circumstances, you can start with something simple like a regular savings account. Check out moneyfacts or moneysavingexpert for current rates.

Monday, 21 November 2011

Financial Planning Week - Budgeting

When asked about their day to day budgeting, it appears that many people in Yorkshire are feeling the pinch. 25% of people in the region are not even setting out a clear budget – the bedrock of any financial plan whilst half (50 %) reported that their household finances have got either a bit or much worse over the last six months.

The current problems in Greece show a stark example of the need to budget at a national level. The situation is no different at an individual level. With the high levels of inflation currently being experienced, things are unlikely to get better in the short term.

Make sure that you have a monthly budget and stick to it. Look for opportunities to cut costs: reduce debts when possible; shop around for a better utility deal (electricity, gas, telephone); shop around for cheaper insurance (home and car).

 
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