Shirley Ballas: Hello, I'm Shirley Ballas and welcome to Rewirement, the retirement
Shirley Ballas: podcast from Legal & General. We'd always planned to launch our
Shirley Ballas: series today, but whilst we've been recording, just like everyone
Shirley Ballas: else, we've had to find new ways of doing things
Shirley Ballas: with the coronavirus outbreak. In our new series, we'll still
Shirley Ballas: be exploring what it means to retire in today's world
Shirley Ballas: and how this can be an opportunity to reset, reinvent
Shirley Ballas: and rewire. Planning for retirement is a longterm game with
Shirley Ballas: great rewards at the end of it. And making the
Shirley Ballas: move from work to retirement is not something anyone likes
Shirley Ballas: to do with a bump. But for many, the current
Shirley Ballas: coronavirus pandemic has caused uncertainty and raised unexpected questions. There
Shirley Ballas: have been plenty of headlines about changes in the stock market
Shirley Ballas: and pension values, but it's time to cut through the
Shirley Ballas: worry and take a measured look at what really is
Shirley Ballas: going on. I want to help you feel in control
Shirley Ballas: of the future and put your mind and mine at
Shirley Ballas: rest. So, we've made this special episode to help you
Shirley Ballas: deal with the urgent questions many of you are asking.
Shirley Ballas: I'm joined by the experts from Legal & General. We have
Shirley Ballas: Chris Knight, CEO of retail retirement, and Sarah McLeish CEO
Shirley Ballas: of financial advice. And Holly Mackay of Boring Money is
Shirley Ballas: here to make sense of it all too. How are
Shirley Ballas: you all adapting to the situation?
Chris Knight: As best we can, I think.
Holly Mackay: I've got two young children in the house, it's the
Holly Mackay: homeschooling that's driving me nuts.
Sarah McLeish: Yep. Same here. I have a five and a seven year
Sarah McLeish: old at home. So, the school are doing a brilliant
Sarah McLeish: job, but like every other family you just have to
Sarah McLeish: do your best and multitasking across teaching, cleaning, running businesses.
Sarah McLeish: And I've started up a hairdressing salon now, as well.
Sarah McLeish: So, COVID Cuts, we call it.
Shirley Ballas: Well, it can't last forever. Chris and Sarah, before we
Shirley Ballas: get into all the detail. What's your view to anyone
Shirley Ballas: looking at a change in their pension right now?
Chris Knight: Oh, Shirley, look, this Coronavirus has filled our life with
Chris Knight: a lot of uncertainty and angst. People might have looked
Chris Knight: at their pension funds and seen a bit of a
Chris Knight: drop. And that's not a fun thing to have to
Chris Knight: do, obviously not to have to see. You might have
Chris Knight: quite a few different types of pension arrangements and you
Chris Knight: probably need to get them all together in one place,
Chris Knight: and have a look, and see what they really are.
Chris Knight: Get all the facts because some pensions come with really
Chris Knight: valuable, important guarantees, for example. And you should really think
Chris Knight: through and take advice, get yourself informed on what to do
Chris Knight: with those, especially. You don't have to necessarily do anything.
Chris Knight: I'm not saying stop, but take your time. Think about
Chris Knight: what's important to you in your life and get yourself
Chris Knight: informed before you act. And as we always say, you
Chris Knight: must shop around to get the best deal for yourself.
Sarah McLeish: Well, I agree with Chris. I mean, pensions and most
Sarah McLeish: investments for that matter, they're designed for the long term
Sarah McLeish: for a marathon, not a sprint. So, if you can
Sarah McLeish: postpone making any big decisions about your pension savings, then
Sarah McLeish: that's got to be a good thing. But if you
Sarah McLeish: do need to access your... understand your options or access
Sarah McLeish: your pension more urgently, then I'd really recommend speaking to
Sarah McLeish: a financial advisor. If you don't have one, ask your
Sarah McLeish: friends, if anyone can recommend one or failing that, visit unbiased. co.
Sarah McLeish: uk, which is a website that shows all of the
Sarah McLeish: regulated advisors in your local area.
Shirley Ballas: We're being asked lots of questions around retirement planning at
Shirley Ballas: the moment. I'm going to sort these questions so we
Shirley Ballas: can talk about everyone's different needs. We've got people asking
Shirley Ballas: questions who are post retirement, people just about to retire,
Shirley Ballas: and people who are a little way off. Let's quickly
Shirley Ballas: explain some of the terms we're going to be discussing today.
Shirley Ballas: Chris, what are dividends, drawdowns, and annuities?
Chris Knight: Thanks, Shirley. These things can all be a bit confusing to get separated out
Chris Knight: in one's mind. Now look, a dividend is generally an
Chris Knight: income that you receive if you're the owner of a
Chris Knight: share in a company. Equity, if you like. And most
Chris Knight: companies pay their dividends out once or twice a year,
Chris Knight: and most companies aim most of the time to maintain
Chris Knight: those dividends or even grow them over time. But, they're
Chris Knight: not guaranteed and the dividends can be cut or even,
Chris Knight: or even stopped. And we've seen quite a lot of
Chris Knight: that from companies in this current crisis. Now, drawdown, that's
Chris Knight: a bit different. That's when you create income for yourself
Chris Knight: by drawing down money from your pension fund. Usually, that's
Chris Knight: when you're in retirement and its great flexibility because you
Chris Knight: can draw down how much you want when you want.
Chris Knight: But, of course, obviously once you've drawn it, once it's
Chris Knight: gone, it's gone. With drawdown, usually sort of benefit or
Chris Knight: peril from the ups and downs of the market. Obviously
Chris Knight: when it's up, it's good and it feels good. But,
Chris Knight: when it falls, then the amount that you can take
Chris Knight: or you might be able to take as future income
Chris Knight: from that pot as a future drawdown income can reduce,
Chris Knight: as well. Annuity's usually an income that you buy from
Chris Knight: an insurance company and the most common type of annuity
Chris Knight: is one that pays you every month or every year
Chris Knight: for as long as you live. It's not flexible, but
Chris Knight: it is guaranteed. It's guaranteed both by insurance company itself,
Chris Knight: and there's a statutory backup guarantee behind that, as well.
Chris Knight: You can buy an annuity that pays an income to
Chris Knight: your family, your loved ones, even after you've passed away.
Chris Knight: And you can also get what we call fixed term
Chris Knight: annuities. That's a product which pays an income for a period
Chris Knight: of time, and then maybe a lump sum at the end.
Chris Knight: That is a bit more flexible with respect to sort of encashment
Chris Knight: options. Then, you can change your mind, do something else with the
Chris Knight: money that you get at the end of the end. So, hopefully, that's a
Chris Knight: good separation of those three different, important concepts.
Shirley Ballas: Okay. Sarah, what are lifetime mortgages?
Sarah McLeish: Yes. So, lifetime mortgages a much misunderstood term. Lifetime mortgages
Sarah McLeish: are a type of equity release. So, these are products
Sarah McLeish: that allow you to release tax- free cash or equity
Sarah McLeish: from your home without having to move out of it.
Sarah McLeish: So, you can take that cash or that's equity as
Sarah McLeish: one big lump sum, or you can take it as
Sarah McLeish: a series of lump sums as and when it suits
Sarah McLeish: you. So, you may wish to take one lump sum
Sarah McLeish: now to buy a new car, another lump sum in
Sarah McLeish: two or three years time to do your kitchen, and
Sarah McLeish: so on. With some of the products now on the
Sarah McLeish: market, you can also take that cash or equity as
Sarah McLeish: a monthly income. So, you could top up your monthly
Sarah McLeish: income by say 150 pounds, 200 pounds a month. These
Sarah McLeish: lifetime mortgages or activity schemes, they're usually repaid from the
Sarah McLeish: sale of your home after the last borrower or the
Sarah McLeish: last member of a couple or a household passes away
Sarah McLeish: or moves into a care home. At that point, the
Sarah McLeish: money that is owed is essentially the toasted amounts of
Sarah McLeish: equity that you've released plus any interest that you've built
Sarah McLeish: up or rolled up, as we say over the lifetime
Sarah McLeish: of that loan. These products, the good thing about them
Sarah McLeish: is that they now come with a very broad range
Sarah McLeish: of safeguards and they have done in fact, for many
Sarah McLeish: years. One of these is something called the No- Negative
Sarah McLeish: Equity Guarantee. That means that you can never owe more
Sarah McLeish: money than the value of your property.
Shirley Ballas: What's just... For my interest, what's the percentage that they
Shirley Ballas: charge you for new equity release? So, if you take money
Shirley Ballas: out your house, what do you... What's generally the percentage
Shirley Ballas: you're paying back?
Sarah McLeish: It varies. It varies hugely. The interest rates can vary according to
Sarah McLeish: your property value, the amount of money that you're trying to
Sarah McLeish: release from it, which we call the loan to value
Sarah McLeish: ratio. On average, interest rates at the moment can be
Sarah McLeish: anywhere between three and 5%. So, not dissimilar from kind a of
Sarah McLeish: standard residential mortgage.
Shirley Ballas: Okay. Thank you. Okay. That's the jargon busted. Let's start
Shirley Ballas: with a few general questions. Holly, you're the CEO of
Shirley Ballas: the financial website, Boring Money. You must be getting a
Shirley Ballas: lot of questions right now. If someone is strapped for
Shirley Ballas: cash because lockdown has resulted in them losing work, what
Shirley Ballas: should they prioritize first?
Holly Mackay: Yeah, surely. I mean, we're getting loads of questions and
Holly Mackay: there's an unprecedented use of the word unprecedented, at the
Holly Mackay: moment. Really, at the risk of stating the bleeding obvious,
Holly Mackay: if someone's lost their job and they're strapped for cash,
Holly Mackay: the first thing to look at is cutting costs. There
Holly Mackay: are some practical things we can all do. Switching utility
Holly Mackay: bills can save a couple of hundred pounds a year,
Holly Mackay: checking your direct debits and your standing orders. These can
Holly Mackay: really rack up and accumulate. So, go in and make
Holly Mackay: sure you need all of those. Things like insurance renewals,
Holly Mackay: don't just take the first deal of your offer to
Holly Mackay: shop around. The next thing is debt. You know, debt...
Holly Mackay: I think my analogy is it can be a bit
Holly Mackay: like fat. You can have good debt and you can
Holly Mackay: have bad debt. The bad debt, the sort of saturated
Holly Mackay: fat of the financial world are things like payday loans,
Holly Mackay: credit cards, store cards. Those are typically things with really
Holly Mackay: high interest rates and we have to focus on paying
Holly Mackay: those off first. You can explore transferring a credit card
Holly Mackay: on a nought percent plan, transferring that over. The last
Holly Mackay: thing is obviously mortgage holidays. There are some many sort
Holly Mackay: of mortgage providers willing to talk to people and postpone
Holly Mackay: or delay mortgage payments. So, those are the sort of
Holly Mackay: most obvious areas I'd start.
Shirley Ballas: Just learned a lot there. Should someone in that position
Shirley Ballas: stop paying into their pension for a while?
Holly Mackay: They could. I mean, these are odd time. Normally, Shirley,
Holly Mackay: I'd almost never suggest someone stops paying into the pension.
Holly Mackay: Pensions are confusing and they're full of jargon, but actually,
Holly Mackay: what a pension gives you is some free money. That
Holly Mackay: doesn't always come across. If you're a basic rate tax
Holly Mackay: payer and you stick 80 pounds into a pension, the
Holly Mackay: government will top that up by 20 pounds. This is
Holly Mackay: sort of quite often not so well understood. If you're
Holly Mackay: a higher rate taxpayer, it can be even more. So,
Holly Mackay: I think turning your back on a pension, just because
Holly Mackay: it's full of jargon and it could feel a long
Holly Mackay: time away, is quite often a bad move. What I
Holly Mackay: would say though, is we have to be practical. We
Holly Mackay: can only spend the money we have coming in. If,
Holly Mackay: as I've mentioned before, there is that debt lurking, those
Holly Mackay: bad debts, those expensive debts, then for heaven sakes, we
Holly Mackay: all have to prioritize getting rid of those first. So,
Holly Mackay: normally, I'd hang on to the pension because it does
Holly Mackay: give you a really good way to turbocharge your savings.
Holly Mackay: But, if there is expensive debt, then we have to
Holly Mackay: get rid of that first.
Shirley Ballas: What's going on with company pension schemes when employees are furloughed?
Holly Mackay: Yeah, this is another sort of confusing area, but the
Holly Mackay: bottom line is, if you've been furloughed, your boss still
Holly Mackay: has to pay your national insurance contributions and your pension
Holly Mackay: contributions. Now, at the moment, if you've got a workplace
Holly Mackay: pension, the law says that your employer has to pay
Holly Mackay: 3% on, what's called your qualifying earnings. So, just to
Holly Mackay: give you an indicator, if you're earning 30, 000 pounds a
Holly Mackay: year, then your boss will be paying an about 60
Holly Mackay: pounds a month for you. So, do check it out,
Holly Mackay: but it's really important that people know that they are
Holly Mackay: still entitled for those pension payments even if they've been furloughed.
Shirley Ballas: As the stock market has gone down, is now a
Shirley Ballas: good time for people to be putting more into their
Shirley Ballas: pension pot if they can afford to?
Holly Mackay: Yeah, this one's really counter intuitive. It feels frightening at
Holly Mackay: the moment, but I always think when the daily mail
Holly Mackay: splashes the headlines out there about stock markets crashing, it's
Holly Mackay: actually a really good time to think about investing or
Holly Mackay: to pay more into your pension. Now, it depends on
Holly Mackay: timing, as always. I wouldn't say that to someone in
Holly Mackay: their nineties, they have very different timeframes to younger people.
Holly Mackay: But, my analogy here is, when we're investing in things
Holly Mackay: for the long term, when do we think about buying
Holly Mackay: them? So, if you're thinking about making an investment for
Holly Mackay: your home... I kind of like (inaudible) as a
Holly Mackay: cookware. It's really lovely, but it's horrendously expensive. Do you
Holly Mackay: buy it when it's full price or do you wait
Holly Mackay: until January and buy it when it's in the sale?
Holly Mackay: In a way, that's how I think about the stock
Holly Mackay: market at the moment. There's some really brilliant brands out
Holly Mackay: there that will recover from this things will kind of
Holly Mackay: come back to normal, and now is a chance to
Holly Mackay: sort of invest more in your pension, or your ices,
Holly Mackay: and get access to those investments when they're on sale.
Holly Mackay: So, don't necessarily freak out when you see sort of
Holly Mackay: headlines about lower stock markets. It can be a great
Holly Mackay: time to access fantastic companies at lower prices.
Shirley Ballas: Let's bring in Chris and Sarah with a few question
Shirley Ballas: for those people who are approaching retirement age. Chris, for
Shirley Ballas: someone who is planning on retiring next year, should they
Shirley Ballas: be putting this off if the value of their pension fund
Shirley Ballas: has fallen?
Chris Knight: Well, Shirley, I think there's perhaps two aspects of this. The one is
Chris Knight: when people should stop working and retiring, and the other
Chris Knight: one is when they might want to access their pension
Chris Knight: funds. So, on the first one, I know lots of people have
Chris Knight: been having mixed emotions about wanting to carry on. I've
Chris Knight: heard people who were intending never to retire, have decided, "
Chris Knight: No, actually I've had enough of this. I want to
Chris Knight: retire." For many people, working part time can be a
Chris Knight: good option, and we can see lots of more people
Chris Knight: doing this. You can help boost your pension pot. You
Chris Knight: help some money going further. You're not spending so much
Chris Knight: if you're still working, so that can really work for
Chris Knight: some people. So the second part is when to access
Chris Knight: your pension pot. It is scary when you see the
Chris Knight: headlines in the papers. People should just check their pension
Chris Knight: pots because they may not have fallen just as much
Chris Knight: as they fear. Especially, if they've been in a life
Chris Knight: stage, or a lifecycle fund where they would have been
Chris Knight: in safer assets and not just in inequity. So, people
Chris Knight: have lots of options, and they just have to give themselves some
Chris Knight: time and space to consider those options before acting.
Shirley Ballas: With all this uncertainty, would buying an annuity be a
Shirley Ballas: good or bad option at the moment?
Chris Knight: Annuities can offer people real security and certain uncertainty in
Chris Knight: these times, which is obviously very valuable. I think there's
Chris Knight: often a misconception here. You don't have to take all your
Chris Knight: pension money and buy an annuity. You might just take
Chris Knight: a part of it and use that to generate income
Chris Knight: that sort of meets your essential spending requirements. Once you've
Chris Knight: done that, of course, you've met your essential spending requirements,
Chris Knight: you can be a bit sort of freer and easier
Chris Knight: with the money that you have left. We always say
Chris Knight: to people that they must shop around to make sure
Chris Knight: they get the best deal. The other thing that people
Chris Knight: perhaps don't know is that if you're not in such
Chris Knight: great health, then you can actually get a much better
Chris Knight: deal from an annuity provider and much higher level of income
Chris Knight: than if you are very healthy. Some people think it's
Chris Knight: kind of the other way around, but for annuities, that's
Chris Knight: how it works. So, particularly, it's important when you consider
Chris Knight: buying an annuity, you think about your health and you
Chris Knight: make sure you tell your advisor and insurance provider about
Chris Knight: that so you can actually get a great deal. So,
Chris Knight: I think annuities, be a lifetime annuities, the rest of your
Chris Knight: life, or fixed term annuities for a period of time,
Chris Knight: they can be a really good option for at least
Chris Knight: part of your money if you shop around and make
Chris Knight: sure you get the best deal for yourself.
Shirley Ballas: Sarah, with returns on retirement plans being low at the
Shirley Ballas: moment, wouldn't it be better to take your pension in
Shirley Ballas: cash and stick it in the bank?
Sarah McLeish: Well, Shirley, as Chris said earlier, when markets are uncertain,
Sarah McLeish: there's a huge temptation to switch your money into cash.
Sarah McLeish: That's a very, very human reaction, but of course, savings
Sarah McLeish: deposit rates are at an all time low at the
Sarah McLeish: moment with the bank of England interest rates being at this
Sarah McLeish: new level. And more importantly, there is, as we said
Sarah McLeish: earlier, a risk that you then lock in any potential
Sarah McLeish: losses that at the moment only really exist on paper
Sarah McLeish: or on a computer screen. If you do lock in
Sarah McLeish: those losses, then you've forgotten the opportunity to allow your
Sarah McLeish: investments any time to recover when markets go back up
Sarah McLeish: as they eventually will. As we said earlier, pensions are
Sarah McLeish: designed for the long term. They are designed as a
Sarah McLeish: long term investment, but if you do need to take
Sarah McLeish: money from your pension, if you do need to make
Sarah McLeish: that decision more urgently, then one thing I would say
Sarah McLeish: is it's really important to be up to speed with
Sarah McLeish: the tax rules on withdrawing money from a pension. As
Sarah McLeish: most of us know, pensions allow you to take up
Sarah McLeish: to 25% of your pension pot tax- free. So, if
Sarah McLeish: you have a pension pots of a hundred thousand pounds,
Sarah McLeish: say, you can take 25, 000 pounds of that with no
Sarah McLeish: tax bill whatsoever, but the remaining 75,000 will be subject
Sarah McLeish: to tax at what we call your highest marginal rate.
Sarah McLeish: So, that may be 20% if you're a basic taxpayer,
Sarah McLeish: 40% or even 45%, the numbers are slightly different in
Sarah McLeish: Scotland, 21, 41 and 46%. So, if you were to take a large
Sarah McLeish: amount or even the whole amounts of that pension pot,
Sarah McLeish: then you could face a much higher tax bill than
Sarah McLeish: if you simply took smaller amounts over a longer period.
Sarah McLeish: So, as always, really important to take advice and to
Sarah McLeish: understand those tax implications.
Shirley Ballas: That's interesting. 25% tax free, but on the other 75%,
Shirley Ballas: you're taxed at whatever bracket you're at right now. Right?
Shirley Ballas: So, if I'm in a high tax bracket time, I
Shirley Ballas: have to pay that tax. So, that comes off your pension... Interesting.
Sarah McLeish: Absolutely. If you took you... If you did have a hundred thousand pounds
Sarah McLeish: and you took it all in one go, then that
Sarah McLeish: could push you into a higher tax bracket than you've
Sarah McLeish: potentially ever been in before if you've always been a
Sarah McLeish: basic rate tax payer. So, quite a lot to think
Sarah McLeish: about and lots of great free sources of information out
Sarah McLeish: there, like pensions wise that will explain carefully.
Chris Knight: Boring Money, as well.
Sarah McLeish: Boring Money, of course, of course.
Shirley Ballas: Sarah, if someone is in say the early sixties and
Shirley Ballas: has seen their income reduced due to the COVID- 19
Shirley Ballas: situation, and they now think they won't be able to
Shirley Ballas: pay their mortgage off before they retire, is there anything
Shirley Ballas: they can do other than sell?
Sarah McLeish: Well, Shirley, what I would say to anybody who does find
Sarah McLeish: themselves in that situation, your first port of call should
Sarah McLeish: be your current mortgage provider. So, you will have seen
Sarah McLeish: in the news that mortgage providers are being asked by
Sarah McLeish: the government to provide mortgage payment holidays. So, speak to
Sarah McLeish: your mortgage provider, understand what relief is available to you
Sarah McLeish: before you do anything else. The challenge, of course, with
Sarah McLeish: downsizing or selling up at the moment is, of course,
Sarah McLeish: that the housing market has grown to something of halt.
Sarah McLeish: It will, of course, come back. But, the timeline for
Sarah McLeish: buying and selling houses at the moment has extended considerably.
Sarah McLeish: So, if you need to... if you are in that
Sarah McLeish: situation, if moving out isn't an option for you at the
Sarah McLeish: moment, if you aren't able to access some form of
Sarah McLeish: relief from your mortgage provider, then of course, equity release
Sarah McLeish: could be an option to consider. There are also now
Sarah McLeish: some active release products on the markets where you can
Sarah McLeish: pay off the interest on these loans every month so
Sarah McLeish: that it doesn't build up over time. So, it behaves
Sarah McLeish: rather than like a traditional mortgage product, but as the
Sarah McLeish: term lifetime mortgage suggests, these products are designed for a
Sarah McLeish: lifetime. They're designed for the long term. So, they should
Sarah McLeish: never be seen as short term fixes or ways of
Sarah McLeish: getting yourself out of a short term problem. They do
Sarah McLeish: require really careful consideration and they should always be taken
Sarah McLeish: alongside expert advice.
Shirley Ballas: All right, let's talk about older homeowners. Where do you
Shirley Ballas: stand if we're planning on downsizing? The housing market is
Shirley Ballas: pretty much frozen at the moment, so these people can't
Shirley Ballas: move anytime soon.
Sarah McLeish: Again, Shirley, as we said with pensions, if you can
Sarah McLeish: ride this out, if you can wait, if you can
Sarah McLeish: postpone that big decision about downsizing, then that's got to
Sarah McLeish: be the best thing to do. So, try and ride
Sarah McLeish: this out, wait until the housing market recovers, and if
Sarah McLeish: you do want to downsize, then try and postpone that
Sarah McLeish: decision if you possibly can.
Shirley Ballas: Now, moving onto some questions from people who have already
Shirley Ballas: retired. If someone is drawing their pension income through an
Shirley Ballas: investment portfolio, their income will be affected as shares and
Shirley Ballas: dividends have fallen. Do people need to revisit their plans
Shirley Ballas: and the income they are taking from their pension pot?
Sarah McLeish: Yes, Shirley. Now is absolutely the time to revisit those
Sarah McLeish: retirement plans, but perhaps not in the way that you
Sarah McLeish: think. What we often see is that in times of
Sarah McLeish: uncertainty, people draw more income from the pension drawdown fund
Sarah McLeish: because they're seeing their investments fluctuates. In fact, they should
Sarah McLeish: actually be doing the opposite. As we said earlier, it's
Sarah McLeish: really important to allow your investments time to recover, to
Sarah McLeish: avoid locking in some of those losses. As I also
Sarah McLeish: said before, it's so important at this time to take
Sarah McLeish: really good advice. If you don't have an advisor, as
Sarah McLeish: I said, do you go to unbias. co. uk to
Sarah McLeish: find a regulated advisor in your local area.
Shirley Ballas: It makes me feel really grateful for my financial advisor,
Shirley Ballas: by the way. Learning so much. Okay.
Sarah McLeish: Absolutely.
Shirley Ballas: Holly, anything you'd like to add there?
Holly Mackay: I think the bottom line is at the moment, if
Holly Mackay: you can avoid it, try not to sell, try not
Holly Mackay: to take money out of your pension. Is there any other
Holly Mackay: cash you have that you can use? Can you use
Holly Mackay: your state pension? Is there any other rental income? Anything
Holly Mackay: down the back of the sofa? Just anything you can
Holly Mackay: do to try and not sell at the moment when
Holly Mackay: prices are at rock bottom, because all you're doing then
Holly Mackay: is locking in losses. So, try and sit tight and
Holly Mackay: look to other income sources if you possibly can.
Shirley Ballas: Now, let's talk about people who are retired and bought
Shirley Ballas: an annuity with their pension funds. A lot of people
Shirley Ballas: choose this option because they want the security of a
Shirley Ballas: regular income, but is this likely to be affected too?
Shirley Ballas: Chris, what do you think?
Chris Knight: Well, Shirley, this is quite an easy one to answer.
Chris Knight: So, if you have an annuity and you have an income
Chris Knight: coming through, that is guaranteed, so that is the benefit.
Chris Knight: So, it doesn't matter about the performance of the stock
Chris Knight: market, or the performance of financial markets, or the economy,
Chris Knight: that money is guaranteed. That's why we think, for some
Chris Knight: people, there are great options in times of uncertainty like these.
Shirley Ballas: Nobody likes to think the worst, but some people have
Shirley Ballas: asked what happens to pension payments from an annuity if
Shirley Ballas: they die?
Chris Knight: Well, that's a great question. I agree. It's not much of
Chris Knight: a fun topic to talk about, is it? I think people
Chris Knight: need to check with their providers. So, if you're receiving
Chris Knight: the annuity that's come from a defined benefits, maybe a
Chris Knight: company scheme, a pension scheme, often these come with a
Chris Knight: what's called spouse benefits. So, the pension does carry on,
Chris Knight: or maybe two thirds of the pension carrot carries on after
Chris Knight: the sort of main pension owner, if you'd like, passes
Chris Knight: away. So, it's good to check and make sure you
Chris Knight: understand that. If you have an individual annuity, then at
Chris Knight: the time you bought it, you would have chosen, there
Chris Knight: are various options that you can take. So, if you
Chris Knight: are about to buy an annuity, which is a perfectly
Chris Knight: sensible thing to be thinking about doing at this point,
Chris Knight: then you should be checking out what those options are.
Chris Knight: So, many annuities you can buy with a spouse benefits,
Chris Knight: as I said, or that pays to your spouse, your
Chris Knight: children, or somebody else. A annuity keeps paying after you've
Chris Knight: passed away either a lump sum or for a period
Chris Knight: of time. So, that's often an option that we would
Chris Knight: encourage people to consider.
Shirley Ballas: If someone's not quite at retirement age, but worries that
Shirley Ballas: something like Coronavirus could happen again, are they better off just putting their pension money into
Shirley Ballas: a savings account?
Chris Knight: Well, this is a really difficult one. I guess, if you put
Chris Knight: your money into a savings account on about February the
Chris Knight: 15th of this year, you would now be feeling quite
Chris Knight: smug in that you've avoided all the losses. Normal wisdom,
Chris Knight: conventional wisdom in the market is that over the long
Chris Knight: run, having your money in a savings account, isn't the
Chris Knight: best thing to do. If you just think about inflation,
Chris Knight: for example, savings accounts, interest rates are very, very low. 1.1%
Chris Knight: would be a good rate for a savings account at
Chris Knight: this point. Over time, inflation does eat away at the
Chris Knight: value of that cash. Conventional wisdom says not a savings
Chris Knight: account, but obviously these are difficult, difficult times. That's not
Chris Knight: what I would be doing, but people have to sort
Chris Knight: of make their own minds and get good advice, as
Chris Knight: we always say.
Shirley Ballas: So, not in a savings account, then where?
Chris Knight: Well, I think, if you're brave and Holly was talking
Chris Knight: about this earlier, you could say stock markets have fallen
Chris Knight: and this is a great buying opportunity. I think, if you're some years
Chris Knight: away from retirement, that's probably what you would do. As
Chris Knight: you get near to retirement, then your pension provider, your
Chris Knight: saving scheme, will have lots of different options that you
Chris Knight: could check the more balanced view of things. I think
Chris Knight: if you were sort of in your fifties and early
Chris Knight: sixties, then again, personally, it's a personal choice. I think
Chris Knight: I'm a balanced say lower risk funds... Something to do, actually.
Chris Knight: Many company providers, you can go on a website and
Chris Knight: get this as well, help you... have some questions, and
Chris Knight: it's like quiz, if you like, to help you understand
Chris Knight: for yourself your risk appetite. How do you feel when
Chris Knight: stock markets fall? Does that really stress you out? Are
Chris Knight: you likely then to sort of fall into a trap
Chris Knight: that Holly was talking about earlier about sort of selling
Chris Knight: when prices are low, rather than being able to hang
Chris Knight: on until things recover? So, that's sort of risk appetite
Chris Knight: and risk tolerance is very personal thing for people.
Shirley Ballas: Holly, anything you'd like to add there?
Holly Mackay: For me, I think there's just... When we think about
Holly Mackay: risk, we don't like risk. We associate risk with doing
Holly Mackay: silly things, with bad outcomes for our family. So, suddenly
Holly Mackay: when we're in a financial environment and people talk to
Holly Mackay: us about risk, a lot of us just turn our
Holly Mackay: backs on it and say, " That doesn't sound like a
Holly Mackay: good idea. I've worked hard for my money. I don't
Holly Mackay: want to take any risk," but it comes down to
Holly Mackay: timeframes, Shirley. For anyone that's saving up for the future
Holly Mackay: and has got more than 10 years on their side before
Holly Mackay: they're going to need their money, why would you leave
Holly Mackay: it sitting in cash when interest rates are up to
Holly Mackay: historic lows? Your money's going backwards, almost. So, you know,
Holly Mackay: for me, if I'm talking to people, if they've got
Holly Mackay: long timeframes on their hands, then I think actually it's
Holly Mackay: risky not to look at the stock market because you
Holly Mackay: know your money's going to sit in cash and frankly,
Holly Mackay: do stuff only for long term.
Shirley Ballas: Technical term there, Chris. (inaudible)
Chris Knight: No, I agree with you. If you're 10, 15, 20 years away
Chris Knight: from retirement, I a hundred percent agree with you. I
Chris Knight: think the challenge really is for people that are two,
Chris Knight: three, four years away from retirement. I think, first of
Chris Knight: all, as we've said, it may not be as bad
Chris Knight: as you fear... as people fear from the headlines, when
Chris Knight: they at their actual pension funds, they may not have
Chris Knight: come down anywhere near as much because they may have been
Chris Knight: already in more of a balanced portfolio, but it's for
Chris Knight: them. It's what's the right thing to do now? You're
Chris Knight: feeling under pressure to do something and helping people navigate
Chris Knight: through that to try and separate out what they can
Chris Knight: do. What they ought to avoid is what we're all
Chris Knight: about. Isn't this what you're all... what you're about in your websites, what
Chris Knight: we're all about.
Shirley Ballas: Holly, some people are in a fortunate situation and have
Shirley Ballas: continued to work from home during lockdown. That has meant
Shirley Ballas: that they have saved quite a bit without paying for
Shirley Ballas: travel, not buying their morning coffee and lunch, no weekend
Shirley Ballas: outings. Should they use this money to pay some extra
Shirley Ballas: off their mortgage or top up their pension?
Holly Mackay: Ah, this is a really hard question, Shirley. It's a
Holly Mackay: bit like asking, I think who should win strictly. By
Holly Mackay: the way, I'm still outraged that Kareem didn't win last
Holly Mackay: year. The answer is personal to you. It depends on
Holly Mackay: circumstances, age preference. But, if you think back to earlier,
Holly Mackay: I talked about financial good fats and bad fats. Mortgages
Holly Mackay: are typically good fat. Interest rates are very low and
Holly Mackay: they're a sensible part of someone's financial plan. Now, if
Holly Mackay: you think about pensions, people have got to remember that
Holly Mackay: when you pay in, you get free extra top- ups
Holly Mackay: from the government if you're a basic rate tax payer,
Holly Mackay: you pay an 80 pounds. Bing, the chancellor waves his
Holly Mackay: magic wand, and another 20 pounds appears, so that's extremely
Holly Mackay: compelling. There are also contributions from your employer, too. So,
Holly Mackay: on balance, I'm in the pension camp, but... and there's
Holly Mackay: always a " but", that money is locked away. Once you
Holly Mackay: pay it into a pension, you can plead, weep, and
Holly Mackay: wail, but you cannot get that money out until you're
Holly Mackay: at least 55. So, it comes with that " but", but
Holly Mackay: if you've got time on your side, then I would
Holly Mackay: always typically favor a pension just simply because you'd get
Holly Mackay: those extra top- ups from the government. You don't often, Shirley,
Holly Mackay: get free extra top- ups from the government. I appreciate
Holly Mackay: there are lots of terms and conditions and saying free
Holly Mackay: money can be fraught with the legal risk, I'm sure.
Shirley Ballas: I'm learning a lot. I want to thank you all.
Shirley Ballas: I can't tell you. It's just made me completely rethink.
Shirley Ballas: I'm turning 60 and you have made me rethink this
Shirley Ballas: whole project.
Chris Knight: There you go. Secret to a happier life.
Shirley Ballas: Here's hoping that's answered a lot of the questions you
Shirley Ballas: have about the impact. The current coronavirus pandemic might have
Shirley Ballas: on your retirement. You can find out more about retirement
Shirley Ballas: planning at legalandgeneral. com/ retirement. This episode was a special
Shirley Ballas: one off, but this series, Rewirement, is all about helping
Shirley Ballas: you plan ahead and get the most out of retirement. So,
Shirley Ballas: although you might have more pressing day- to- day worries
Shirley Ballas: at the moment, hopefully the tips and information in this
Shirley Ballas: podcast will help you focus on a brighter future ahead.
Shirley Ballas: Next time, we'll be getting to know the inspiring rewirees
Shirley Ballas: who are looking to the future and sharing their hopes
Shirley Ballas: for their later years. Subscribe on your podcast listening platform
Shirley Ballas: and make sure you don't miss this. I'm Shirley Ballas
Shirley Ballas: and I'll catch up with you next time.