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They ploughed the fields then scarpered! Harvest time?

23 August 2023

September 2023 is almost upon us, and the summer season is now behind us. Based on the changeable weather that we have endured, I am not sure that we will see a real difference in the local climate. And we are all aware that the UK household economic climate has also been rather stormy over the last year or so, as the cost-of-living crisis continues, along with high inflation and borrowing costs.

As I tap away at my iPad, I am reminded that autumn and winter are on their way, both literally and, for some, metaphorically. There have been regular articles in the press over the last few years commenting on the number of workers aged 50 plus who have been taking early retirement, or just stopping work. They ploughed the fields then scarpered! This remains a concern for the UK government, as noted in their recent change in pensions legislation with the nil-rating and withdrawal of the HMRC Lifetime Allowance. Early retirement is adding further pressure to an already tight labour market and is one of the factors fuelling inflation.

Statista notes that the economic activity rate in the UK has remained about 21% for the last seven years or so. More here: economic-inactivity-rate-uk/

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How many analogies can we come up with for comparing autumn with the end of a working career? Many, I am sure you can think of some, and one that springs to mind is that you can only harvest what has previously been sown. From a pension and financial planning perspective, where will your regular income and capital funds come from when your 'harvest time' arrives?

The value of funds available to many may not seem as high as hoped for and this can in itself be demotivating. Indeed, we are advocates (where checked and considered) of maintaining a range of separate pension and investment plans to avoid the potential risk of 'all eggs in one basket'. Usually, it's a range of sources that brings the overall retirement 'harvest' together, possibly in combination with a spouse or partner.

This might include:

Auto-enrolment / workplace pension savings: virtually every company is now obliged to offer a workplace pension scheme. However, it is worth noting that many schemes operate minimum contribution levels, so capital values may not be high.

Old employer pension schemes: many people have more than one employer over their working lives. If you think you have an old scheme but have lost it, there is a free pension tracing service available here: find-pension-contact-details

  • Personal pensions, stakeholder pensions, SIPPs and the like
  • State Pension: you can check your forecast here: check-state-pension
  • Part-time / consultancy work (if you plan to phase your way into retirement)
  • Your own accumulated savings (we would normally advocate maintaining 3-6 months' income as ready capital, even in retirement)
  • Redundancy payment (The first £30,000 is usually paid tax free)
  • Inheritance (although long term care costs are seeing this source of capital reduce for some and you also need to take into account inheritance tax charges. In our experience, not normally a reliable source of future funds)

These are only examples, and some of these sources are likely to be more certain than others. In addition, we would normally advocate entering retirement mortgage and debt free if possible.

Your overall attitude to investment risk may also change as you move from work to retirement and it's important that you review this. Our Investment Risk Scale may help with your considerations: attitude-to-investment-risk

Our experience shows that it is usually the cumulative effect of these various sources of funds, including pension tax free cash, which creates the overall income level that can be used for the future.

It is important to check the overall picture early to understand what you have, what you could build on and what the overall funds could provide in retirement. Our Retirement Options Schedule may help in this regard, and this can be found on our website here: pension-retirement-planning

Finally, make a Will and make sure it remains up to date. If your careful plans end sooner than you had anticipated, I am sure you would want your estate to also be planned carefully, avoiding inheritance tax where possible.

However you plan your personal retirement 'harvest', be ready and start your planning early. If you want to know more about how to start the process, then have a read of our book: Coming in to Land, Runway to Retirement

As with all of our topical commentary, no individual advice is provided during this blog. The team at Chapters Financial will be happy to help you with your own enquiry about how you plan for your future years, their costs, and your needs.

Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

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