MONEY
RETIREMENT
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Cherry Reynard looks at the options
available to you if your circumstances
change drastically after you have retired
I
t is tempting to see
retirement as a benign
period of gardening, golfing
and globe-trotting, but the
reality – particularly for today’s
ambitious pensioners – is rarely
so straightforward.
From the rise of the “silver
separators” to supporting povertystricken 20-something children,
the next generation of retirees may
need to be a little more flexible in
their pension arrangements. How
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can they make sure their finances
can cope with any nasty surprises
in later life?
It is clear that retirement is
changing. Not only are people
increasingly working beyond
state retirement age – around
one in three, according to a
recent survey by Prudential – but
life in retirement has become
more complex. A report by the
International Longevity Centre
predicted that by 2037, the number
of over-60s divorcing could
increase from 15,700 in 2012 to
more than 22,000. The divorce rate
for the over-60s climbed by more
than 85 per cent between 1990 and
2012.
BOOMERANG GENERATION
Retirees also have to cope with the
“boomerang generation” – grownup children living at home due
to financial constraints, a lack of
prospects or both. A recent survey
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by debt management group PayPlan
found that a third of indebted
parents with grown-up children
living at home have been forced
to take out loans to meet the costs
of feeding and clothing them. As
people have children later, many
may still be meeting university fees
well beyond retirement age.
Then there are the truly
unexpected events. One adviser
reported having to advise a client
on releasing money when their
teenage son had to be bailed out
of prison. That may be extreme,
but issues such as ill health can
take people by surprise. While
people may expect long-term care
costs later in life, relatively few are
prepared for such a large hit in the
early years of retirement, but it can
and does happen.
Until recently, pensions were
ill-equipped to cope with these
shocks. Patrick Connolly, certified
financial planner at AWD Chase de
Vere, says: “Before the introduction
of pension freedoms, most people
simply took their 25 per cent
tax-free cash allowance from their
pension pot and used the rest to
buy a lifetime annuity.”
“An annuity provides people with
a guaranteed income for life, which
shouldn’t be under-estimated, but
it is inflexible. An annuity is no use
if somebody has an emergency or
specific requirement and needs to
access cash in a hurry.”
For this group, the only real
option that used to be available
was to tap into cash savings and
possibly other investments such
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NOT ONLY ARE PEOPLE
INCREASINGLY
WORKING BEYOND
STATE RETIREMENT
AGE, BUT LIFE IN
RETIREMENT HAS
BECOME MORE
COMPLEX
as ISAs, which could be accessed
at short notice. For those who had
not been so prudent (or wealthy),
the options were rather more
uncomfortable and mostly limited
to realising money from the family
home, through a sale, re-mortgage
or equity release.
SECONDARY MARKET
This is still the case for anyone who
has already retired and annuitised.
However, there may be another
option from next year onwards
for those who are already retired,
as the chancellor consults on the
creation of a secondary market
for annuities. It is his attempt to
ensure that existing retirees can,
to some extent, participate in
the new pensions freedoms. The
consultation is designed to work
out how existing policyholders
could exchange their contract for a
cash lump sum.
However, it won’t be a panacea.
Steven Cameron, regulatory
strategy director at Aegon, said
at the time: “Selling a guaranteed
income for your life and in some
cases your spouse’s is a major
decision and won’t be right for
many. Good quality advice here
could be particularly valuable.”
“We must avoid people cashing
in an annuity, spending the money,
being left with an income below
the means-tested benefit threshold
and only then being told by the
government that they’ve lost their
entitlement to a top-up.”
“Many existing annuitants could
take a short-term cash injection but
end up paying the price later on in
their retirement if they don’t get
the right advice.”
CHANGING LANDSCAPE
Anyone who is still to retire can
take advantage of the new pension
freedoms, which should help them
manage some of these issues. Fewer
people are expected to buy an
annuity and therefore more will
have more flexibility over how they
take benefits.
Petronella West, director of
private clients at wealth manager
Investment Quorum, says: “Such is
the landscape now, it doesn’t matter
if money is tied up in pensions.
Investors can access lump sums,
even if they may have to pay tax.
Pensions are now a very efficient
way to withdraw money in the
event you need it in a hurry. It has
really changed the landscape.”
Nevertheless, even in the new
environment, she believes that the
best way to plan for the unexpected
is to have a clear, coherent
financial plan in place. She believes
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