The 2019 ISA season is now in full swing, and it's as good a time as any to focus on financial planning - and, within that, looking ahead to your retirement years to ensure financial security.
Is early retirement a realistic prospect for young people?Current Affairs
Away from the noise of Brexit drama and market turmoil, a fascinating study on attitudes to retirement in the UK was carried out this week by Rathbones Investment Management. Against a backdrop of stagnant wages, soaring housing costs and low interest rates, the headline finding of the research was ostensibly counter-intuitive: just under half of under 35s believe they will be in a position to retire at the age of 60, while a mere 4 per cent think they'll need to work beyond the age of 70.
It appears that such optimism is not restricted to young people either, with Rathbones reporting that some 40 per cent of those between the ages of 36 to 54 expect to down tools at 60, with less than 10 per cent expecting to continue work after their 70th birthday.
Even income doesn't appear to be major determinant in the views of these 1,500 respondents, with those earning a net salary below £25,000 anticipating that they'll be able to retire at 66 on average. Interestingly, the corresponding average for those with a net salary in excess of £100,000 was not too dissimilar, at 63.
Confidence or complacency?
Of course, predicting when you're likely to retire and the age at which you actually retire are two different things, and the worry is that a blend of ignorance and complacency could leave younger and middle-aged individuals in for a nasty surprise in later life.
The survey found that over two thirds of those under the age of 35 hadn't actually started saving for retirement at all. This figure seems bloated given the advent of auto-enrolment, and it may be that many of these respondents are unaware, or simply not factoring in their savings into a workplace pension.
Nevertheless, it is an alarming sentiment, especially given that the state pension age is steadily increasing. It is 65 for both men and women at present, and is set to reach 68 by the year 2039. And, given the pressures faced by an ageing population, coupled with rising life expectancy, there is good reason to believe that those goalposts will be moved.
Then again, more than one in six under 35s who took part in the survey said they expect to receive an inheritance, which they plan to use to help fund their golden years. Added to that, auto-enrolment itself is not only putting retirement planning in the spotlight for young people: it is compelling them to actually put money away for their future. This may go some way to explaining such high levels of optimism.
Is auto-enrolment enough?
The great benefit of auto-enrolment to an employee is two-fold. Firstly, contributions into a workplace pension are made from your pre-tax salary, which is a valuable form of tax relief. And secondly, employers are obliged to match your contributions up to a certain level. In April this year, that statutory minimum rose from 1 per cent to 3 per cent, and that curve is set to steepen again to 5 per cent in April 2019.
It will mean that you can put away 10 per cent of your salary while only coughing up 5 per cent yourself. It is, quite literally, free money. But is it enough of a retirement saving in itself? There are many rules of thumb on this front, and many variables too (such as what you earn and when you start saving). Yet 15 per cent of your income is a reasonable yardstick to work with, which means it is highly advisable to squirrel away more than just the 5 per cent threshold at which your employer must match your contribution.
Something else that's worth considering is whether you wish to have a more hands-on approach to the setup of your workplace pension. Auto-enrolment pension portfolios are typically invested in what is known as a default fund - one which generally comprises about two-thirds worth of stocks and shares, and adjusts its risk trajectory as you get closer to retirement age.
A default fund is a sensible backstop option, but, by its nature, is also a one-size-fits-all approach. Given that each individual situation is unique, attitudes towards risk vary, and the pool of investment choice continues to evolve (not least with the rise of asset classes such as peer-to-peer lending), it may well be worth consulting an independent financial advisor to see if you can improve the performance of your pension fund.
Closing the gap between expectation and reality
There are many other mechanisms beyond pensions through which to plan for retirement - property, savings and other investments to name but a few. The key is to put later-life planning front and centre of your finances and budgeting. Especially for younger people, retirement age can feel intangibly far into the future, and difficult to prioritise in the face of more immediate financial challenges.
However, in these turbulent economic times, the safest path forward is to take control yourself; start planning for retirement as early as possible, and to save or invest as much as you can. That way, we can be hopeful that the apparent optimism among younger and middle-aged members of our society is realised in the form of a secure, stable retirement – rather than being a troubling misjudgement of their financial futures.
The Lifetime ISA (LISA), announced in 2016, would prove to be one of George Osborne’s last flagship gestures to UK savers and investors as Chancellor, eventually launching against a backdrop of anti-climax a year later in April 2017.
There is barely a week to go until the conclusion of the 2017/18 financial year, which means that, as ISA season begins to hot up, time is running out to take advantage of your ISA allowance.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.