THE pensions minister Guy Opperman recently expressed the view that, if you’re 40 and haven’t yet talked to a financial advisor about your pension, you’d better get your skates on.
His comments were in connection with the Pensions Advice Allowance. Oh, so you've never heard of the Pensions Advice Allowance?
Don’t worry, you’re not alone. The Allowance was introduced in 2017 to help pension savers in defined contribution pensions get their retirement planning sorted.
It allows you to draw £500 tax-free out of your pension to spend on professional financial advice. You can do this three times in your life, but you have to spread them out – you can’t do it twice in the same tax year.
Shortly after the allowance was launched, a survey by market researcher YouGov found that of 4,000 adults they contacted, four out of five hadn’t heard of the allowance, and of those who had, only 2 per cent were planning to use it.
Information and uptake were, in other words, dismal.
Now Guy Opperman has said the allowance is ‘under review’, but he made some additional comments that cast an interesting light on our behaviour as pension savers.
He said people in the latter years for pension planning – those between 55 and retirement age – did not feel like spending their own money on pensions advice, because by the age of 55, most had already decided what they were going to do with their pension.
Opperman said that savers had to be reached well before they get to that age, so that the decisions they are making are based on full information and professional advice.
His conclusion was that a “mid-life MOT is the way forward.”
Now, in this esteemed column we’ve been recommending a financial mid-life MOT for years. It’s always nice when the pensions minister catches up.
An across-the-board review of your financial planning once you hit 40 makes so much sense.
For instance, you can have us look inside your personal pension, to see where the money is invested. Many people are unaware that, if your money is invested in funds that are not performing very well in recent years, we can switch you into the top performers, thus boosting your savings with extra growth you might not otherwise have got.
Then we can fill you in on the pensions flexibilities that were brought in in 2015, which give you the freedom to draw out money from your pension, to reinvest or simply treat yourself, once you turn 55.
Second, we can look at your insurances. By 40 you may well have life insurance already. So many people take it out when they get married and start a family - in other words, once they have dependents.
But did you know, you’re statistically much more likely to lose your health, than lose your life, before you retire? That’s why critical illness insurance is an essential, to protect your family and yourself from financial hardship if you are struck down and have to stop work due to a major health setback.
We financial advisers like to say that life insurance is the cover you take in case you die; critical illness is the cover you take in case you don’t. See? We’re fun guys really.
Third, we should be talking about you making a will, and addressing the whole area of inheritance planning.
Having a proper and up-to-date will is crucial to having your estate and property passed on to your family as quickly and efficiently as possible.
If you don’t have a will when you die, your goods and chattels will be distributed by the courts, perhaps not exactly as you would have wished, and the whole process of probate will certainly take much longer.
During this time waiting for it all to be concluded – it can take months - your family could face a period of financial hardship that could so easily have been avoided.
We’re just scratching the surface here, these are just the main issues we could help you with in your mid-life MOT. Why not put a smile on the pensions minister’s world-weary face and call a financial adviser today?
:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com
