Great retirements don't happen by accident!

This is a general discussion and does not constitute advice. If you need advice on your own personal circumstances please contact your financial adviser. The value of an investment may go down as well as up, and your fund value in future may be less than the payments you have made. Tax information is based on our understanding as at September 2009, of current taxation, legislation and HM Revenue & Customs practice, all of which are liable to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances. Alvin Hall is an independent financial consultant, and all comments and opinions are his own, and not necessarily shared by the Prudential.

H: Jayne Constantinis, host
A: Financial expert Alvin Hall
D: David Thorpe, retirement specialist from Prudential.

H: Hello and welcome to the first Prudential Pensions Surgery. Now, if you’re one of the thousands of people planning for your retirement, I’m sure you’ve got a good idea of how much you’ve built up in your pension fund, haven’t you? Well you might be surprised to learn that in a recent survey of over 50s a surprising 6 out of 10 said they were not certain how much was in their pension fund, and almost half acknowledged that they didn’t feel their pension would be enough to cover the monthly bills once they did retire. Yet despite that, 80% said they hadn’t increased the contributions to their pension pots in the past 12 months. Well we sent our cameras out onto the streets to get public reaction to the news that people spend so little time thinking about their pensions

Video Footage

“Well I’m surprised to hear that now, bearing in mind all the problems that have happened with the shares and the recession, I would have thought most people would have tried to find out what was in their pension fund. But then again they might be frightened about finding out. Not wanting to know.”

“I’m absolutely certain that my pension will be insufficient to maintain my current lifestyle. Or indeed any sort of lifestyle frankly. Because not only am I you know within 63 months of retiring, but I’ve also got young children. One about to go to university and the other one just started secondary school and so you know there’s no way that my pension is going to stretch to anywhere close to that.”

“My daughter froze her pension because she said she can’t afford to keep paying into it, what with rents and that, you know and the tax she pays and that, because she’s a single person so she pays a lot of tax and so as I say she froze it. She can’t have any out but she’s not putting any more in.”

“People not putting enough money into their pension fund – I think it’s quite common. I don’t suppose I put enough money into my pension fund, but perhaps when you get to my time of life, it sort of sharpens the mind just a tad when you think how close that is, I’ve actually worked out how many pay days there are until I retire, and calculated how much pension I’m going to get, and os I wouldn’t dream of not continuing to contribute into a pension fund. But having said that I along with probably thousands of others have got gaps – gaps in my provision really.”

H: Mmmm – does that ring any bells I’m hearing them loud and clear. Well don’t worry because we’ve got expert advice on hand here on the Pensions Surgery, because I’m delighted to be joined by independent financial expert Alvin Hall and David Thorpe whose a retirement specialist from Prudential. Gentlemen welcome

A: Thank you

H: And of course we’re live so if you’ve got a question for either of our guests then do type it in the box on your screen, send it to us with your name of course and we’ll get through as many as we can during the course of the show. Let’s begin by thinking about this age business. People in their 40s and 50s surely we have got ages – we don’t need to start thinking about our pension yet?

A: This is not true. Time passes much more quickly than people imagine, especially if you have 20, 15, or 10 years to retirement so it’s important to act now so that you have sufficient amount of money in your pension pot to carry you through retirement. I tell people look at this from the other side of retirement – you will be retired today 20 or 30 years. Will you have enough money to stretch over that period of time? If you don’t think you will, then start contributing more now

D: Yes I would agree with what Alvin said, people don’t realise how long potentially retirement can last. And of course when we look at the state pension, what we find is that that is moving further away because people are living longer and the state retirement age is being pushed further away for many people, so it’s more important than ever that we do have a look at it for ourselves

H: Those comments were interesting weren’t they in the Vox-pop and there was a theme running through, and I feel this myself – there’s a fear – we don’t almost want to know the bad news and so we kind of think well, best not to ask the question . Do you think that’s a common factor?

A: Oh yes. Look at what happened this year, if you had money in any pension in the stock market drop you didn’t open those statements, you sort of put them in the drawer and closed your eyes. I certainly did that, so I think that’s what drives it. Also I think another component is that people often want their pension providers to be like mechanics or doctors. You go to them and they tell you exactly what to do. People need to learn that they have to participate in the creation of their own pension, they need to monitor them and be aware of the value of those pensions

H: I think sometimes people come to somebody like the Prudential and say I just want to fix it, please just make the problem go away so I don’t have to think about it

D: Yes. The fact is of course that pension planning is not short term, we can’t do it over the short term, it’s got to take the long term view, and there will be ups and downs along the way for many people, but hopefully if we’ve done the right planning and contributed the right level then it should, hopefully work out when we get to the point of needing that money

H: I think another issue as well which is highlighted in Robert, our first question in from Robert, is I think there is a lot of confusion among people who are not that financially literate, I count myself among those, about the different types of pensions. So Robert says “what’s the difference between the pensions – stakeholder, personal pensions, SIP, retirement account” – it is a confusing landscape isn’t it?

A: It is. Of the three, the stakeholder pension is the most flexible and the most transparent, in that case you set up your own personal pension, you can contribute to that pension whether you’re working or not. Let’s say you decide to take some time off to have a child or take care of a sick relative, then someone else can contribute to that pension for you, and there’s a limit on the charges for that. So of them that’s the most transparent. David can talk about personal pensions

D: Personal pensions really are – have been around for quite a long time, and the stakeholder pension was, if you like, a new version, a more sort of consumer-friendly version of the personal pension, as Alvin said, with charges limited and certain sort of regulations put random. Designed really to make that type of pension accessible to more people, and the other option which was the SIP, or self-invested personal pension effectively you’re making investment decisions yourself, and so the sort of assets that sit in that pension pot will be controlled by you and not the pension provider

A: And that requires that you have knowledge, discipline and most importantly a vision of what you want in retirement. You should be working toward a specific goal

H: And so your pension is very much bespoke to you, it’s all a question of your stage of life, what you can afford and what your – as you say – what your ambitions and objectives are – and that’s something that needs to be talked through with an expert, you know, like yourselves isn’t it?

A: Exactly. I think it’s really important to remember that planning for your pension is long-term as David said, and if you’re working with a financial professional, it is a marriage – you’re working together, it’s not giving your money over to this person and letting them do whatever they want to with it, you get the best results if there’s communication between the two of you, about your goal and how your life changes over the years as you’re moving toward retirement

H: That’s where we need to open those letters

A: Yes

H: When they come through the door! So it could be that somebody who perhaps did do the forward planning and started a pension much earlier, maybe needs to re-assess whether that particular pension is appropriate now. So it’s not just a question of upping your contributions but looking at –

D: That’s right. That’s right because legislation changes, there are different products around now, and we should take control of it and do a regular review. And when that annual statement comes, sit down, have a look at it and take some action if action’s needed, not defer it if we can avoid doing that

H: Yes. Steven T has sent us – by the way we’re getting lots of questions in, do keep them coming, we hope to get through them all – Steven T says “how much will I get from the state pension? Does it go up each year to keep pace with inflation?”

A: Currently if you’re an individual you will receive a little over £95 per week if you retire. If you’re a couple you will receive a little over £152 per week. This changes periodically due to inflation and other government regulation, but he needs to keep in mind that this is for most people not enough money to retire on. So they need to look at the other part of the pensions area, such as occupation pensions, personal pensions to make up for any shortfall that could occur

H: And I think possibly in recent months, people have become a little bit more nervous about – about pensions and have maybe been thinking of other retirement plans if you like, like property. What’s your view, is pension still the best way to plan for retirement?

D: I don’t think there is a definitive answer to that really. People will use different things and maybe not having all your eggs in one basket is one thing to consider, so property could play a part. Of course you know property is not foolproof any more as we’ve seen in the, you know in recent times. Values have fallen and of course we’ve got to think about the time when we want some cash or some income from that property that we perhaps have to sell it to get the cash. What’s the market going to be like or are we going to have a tenant that brings in rental income and so maybe in conjunction with other pension vehicles, it may be appropriate but there isn’t a definitive answer to that really

H: What’s your view Alvin as an independent advisor about the value –

A: Oh I agree completely with David. I think that people over the last decade or so have come to view property as a failsafe – it will always make money and it will always go up. Just driving to the studio today the driver told me that he had bought some property and it’s gone down in value and he was using it for rental income, and he says well I’m really worried now. People need to realise that you can’t depend upon one class of assets to provide for your entire – for your entire retirement. So you need to look at property if you use that, you need to look at the stock market, annuities, you should create a portfolio with enough diversity so that if one area falls, not the entire portfolio is affected

H: Spread the risk.

A: Exactly

H: As they say. Let’s have a look at Alec Pelling’s question, he says “I’ve worked out that between now and when I retire I’ll have paid in excess of £54,000. Would it not be better for me to pay this money into a monthly high interest account, then all of the money would be available to me either as a monthly income or as a lump sum.” Would you like to take that one please David?

D: Of course putting money into pensions the – one of the benefits is actually getting tax relief on the money that goes in there, so I think the figure was £54,000

H: Yes

D: But of course that over the years is deducted and allowed against tax, so as a basic rate tax payer every £100 that goes into the pot actually costs £80, so that’s a significant help towards putting money into pensions, and you don’t necessarily get that with accumulating money in high interest accounts. Of course we’ve got ISA allowances and so on, but that is fairly limited, and again I think it’s a question of using a variety of different vehicles, including pensions and maybe ISAs as well

H: Let’s also answer Anne Godsiff’s question – who says “I have a pension plan with the PRU with a pot of a bit over £100,000.” She works part-time, and still makes monthly contributions. She’ll be 63 next April and therefore expects to retire within 30 months. “Does it make sense to add an additional lump sum to my pot now?” That maybe a position that a lot of people watching are in

D: I think adding money in terms of lump sum depends on affordability. Of course there are limits on what you can put in, and that depends on the level of income, earned income and so on. But it really – the more that goes in, the sooner it goes in, the better it’s working for you. If it’s affordable then of course it will help boost that pot.

A: I think people need to look at their pensions when they’re getting to the age of this lady, and say to themselves how much do I want to get out of this pension every single month? You need to know what your income’s dream is going to be, and so I think she needs to look at this from both points of view – one can I afford to make the additional contribution and if I do what would that give me over the next 20 or 30 years that will make my life easy? That will give me financial peace of mind.

H: But the other side of that surely, and we heard in the Vox-pops didn’t we, one woman said that her daughter had frozen her pension contributions. It’s all very well anticipating what you’d like to have in retirement but you’ve got to be able to afford the contributions. What would you say to people that perhaps right now are feeling the pinch, and maybe know that they need to be contributing more but just don’t think they can?

A: I think that during this time people need to look at their budgets, see when they – where they can make cuts, and be disciplined. Your pension must remain a part of the things you can afford in your life – food, shelter, clothing, a few vacations and a contribution to your pension. Don’t stop contributing to it – continue because a little money contributed today can yield great benefits when you retire

H: Because you sometimes end up having that conversation that goes something like – I’m going to make sacrifices now for you know – I may not even make it to pension age. It’s all balance isn’t it?

A: No people I think have fake fatalism about that, they have a lot of fake fatalism about reaching retirement, but I’m in this age group, you know I’m over 50, I’m looking at 15 years or so to retirement and I am really being diligent. I think a few sacrifices made when you’re in your 50s is really important. I remember something a lady said to me when I was in my 30s and 40s. She said to me “Alvin, by the time you get to be 50 you need to know who you are so that you can make the sacrifices that you need to make sure that when you retire there’s enough money there. You don’t need to spend money when you’re in your 50s getting to know yourself.”

H: Yes and the big question of course is if you’re in your 50s what are you on, because we all want some of it! Alan Gatter has sent a question in that I think you’ll want to tackle. He has a company pension, he’s worked for the same company since 1971 and has accrued 38 years eligible service. He’s 54 now, is it possible to take the pension early, and what are the implications financially if he can?”

D: Ok. The answer is you can take the pension early. Of course it really depends on general situation, is he going to continue working and so on – the fact is that the pension, if taking it early is likely to have a reduction, depending on the type of pension it is – from the information it sounds as if it’s a sort of defined benefit type of scheme, which will have a normal retirement age, and usually taking the benefits before normal retirement age would mean an actuarial reduction in the level of benefit that you get.

H: What would your view be Alvin?

A: I agree with David, I think he should look at this and say you know, if I retire earlier am I going to get a pension that I really, really need – the amount or shall I wait a few years and make that decision

H: Ok, great. Ken would also like some advice along similar lines. He’s 56 years old and has a pension with the Prudential which is frozen at the moment. He’s got two company pensions, also frozen because he’s left their employment, a value about £6500 he says – question is, would it be better for him to transfer the two company pensions into a Pru one to get a better lump sum for the annuity plan – for the annuity he plans to buy in the future, or leave them where they are and have smaller pensions from 3 different places?

D: Right. A number of options to consider really – there is the possibility of moving the pensions across and making them into one pot, of course what we’ve got to consider there is would there be a financial loss or a penalty for moving them? And so we need to look at that. And of course the charges that are levied on those paid-up pensions, you know would it be cheaper to move them across or would it be more expensive, and it depends on those factors really. But of course it could be done at the point that he takes the benefits, or takes the annuity because they could be brought together as one annuity at the point that he wants to take the benefits

A: What I love about the questions we’re getting is that they point to the fact that everyone needs to get a little additional advice. There is no one-size-fits-all pension, because we all have different circumstances. You know David has worked for a company, he may have a company pension, I haven’t worked for a company for years so I have a – you know – a personal pension and our needs and demands are quite different as we approach retirement. So everyone needs to get a bit of advice and get more information. Information is your power in this situation

H: I mean if somebody like Ken came to you David, what sort of – you know to what extent can you help him navigate through this particular problem?

D: Well if he was to talk to Prudential they would – sort of explain the options and give him as much information as they possibly could, with regard to different annuity options and so on and so forth. What Prudential can’t do of course is make the decision for him. They can give him information but dealing directly with us he would need to make the final decision himself

H: But we always do, don’t we, as you say – each pension is so personal to you, you have to make some decisions about the level of income you want, what you’re prepared to put in and so on so it’s useful to get that guidance. Let’s take Shirley’s question, very simple – “isn’t it better to put my money into the building society or an ISA rather than more into my pension?”

A: I think that spreading the money around is a good thing, but remember that contributions to pensions come with tax relief. If she wants the tax relief, and she wants it on an amount over and above the ISA limits, pensions are the best ways to do it. If she just puts it in a building society there will be no tax relief for her

H: Ok. Adrian has actually – he starts off – what we’ve just been talking about independent financial advisors – Adrian Elwood, he’s had a couple of very bad experiences with IFAs he says, so how can he sort out his private pensions with 5 companies – sounds like quite a complicated problem – “I’m about ready to use the funds they’ll provide to be able to stop working, really worried about getting involved with an IFA again, can he go it alone? Regards.” Thank you. Thank you Adrian!

D: The answer is you can go it alone, there is no problem in doing that, but you need to understand the sort of information you need to request, so you’d need to understand the values of those 5 different pensions pots, the type of pension that they’ve come from, and then you can talk to providers about the type of annuity that you might want to take. You know the different pensions might have different rules in terms of what he can take, but you can bring them together and it is possible to do it yourself but it is difficult and there will be a fair amount of paperwork

H: Yes, what do you think?

A: Oh I’m sort of in that situation – I make all of my decisions myself, and so with that I have to constantly be up on the legislation, up on the laws, finding out about the pension. His greatest power is to ask questions – don’t assume. If he assumes he’s likely to make a mistake. So ask enough questions to get enough information if he wants to try to do it himself

H: Sometimes though the problem is knowing which questions to ask isn’t it?

A: That’s it

H: I think he’s –

A: Any question ask any question, there’s no such thing as a dumb question or an ignorant question when it comes down to your pension it is your money

H: Yes

A: It is your retirement

H: Yes

A: You are in control

H: I mean I suppose sometimes you think with going to an IFA you’ve got some kind of comeback, you’ve got some kind of guarantee behind the advice that they give, but he’s had bad experiences with them so – going alone is probably going to be better

A: I would say it’s like medicine. People think that medicine is always a science, but part of a good doctor’s skill is the art of medicine, and that is something that is not quantifiable. Somebody who has insight, who can tell you something about yourself. The same thing is true about pensions – when I sit down with a person that I work with sometimes, we talk about my tolerance for risk, how much money do I want in retirement, do I need to become much more conservative in this environment? It’s that conversation either with yourself or a financial professional that gives you those necessary tools and insights – the art of making your pension better in addition to the science

H: Yes. That makes you sound more interesting as well doesn’t it? “The art” – sounds like there’s some sort of finesse involved to it

A: There is, I really believe there is. I think you have to be aware of yourself and how you change and evolve over time. It’s not just a science – if it were a science we could all do exactly the same thing and we would all retire happy

H: Let’s take Richard’s question. He’s in a defined benefit pension scheme, due to retire in 9 years, in 9 years time. He has an expectation of what his pension will be based on years of service and final salary. But how safe is it to plan on this for retirement, “can I lose the lot or a significant amount of it?” This comes back to this – this feeling of insecurity that people have generally about pensions now – what would your thoughts be on that?

D: I think the key there is that it’s a defined benefit scheme and therefore it’s providing benefits based on salary and service, which effectively has got a lot of years in the bank, and that is – is comforting to know that you’ve got that there. Obviously you know that things may change at some point in the future, and there are rules and regulations around now that stop that fund disappearing, but having that 3- odd years in the bank is really, really worthwhile

A: So many people today would love to have –

H: Yes

A: Defined benefit plans because they’re gradually going away, because of the cost of maintaining them, so when somebody has a pension plan like that, my rule is hold on

H: Yes, yes. We’ve had a lot of questions, thank you – I’m afraid we’ve just got time for one more , so we’re going to take Jack Thomas’s question – “50 this month”- congratulations. I think life begins at 50 these days.

A: Yes it does

H: 50 is the old 40 I’m sure and “I’ve been told I can take part of my pension as a lump sum upon reaching 50. Is this the case, and if so would it be a sensible thing to do?” He’s got £20,000 in a company fund and £17,000 in a private plan. Thoughts please David?

D: The rules at the moment would allow him to take a quarter of his pension pot value as cash, because he’s 50. The rule does actually change from April of next year, April 2010 when the earliest you will be able to get any pension benefit is going to be 55, and I think in a previous question we covered the point what’s the purpose of taking the cash now? Is it sensible to take that cash, because if he takes some cash he would need obviously to convert the rest into income and is that income needed now whilst he’s working, or would it be an alternative to keep it longer and maybe grow it for the future?

A: I agree with that. I think it’s often very tempting when you see that lump sum sitting there

H: Yes

A: Calling your name

H: Yes

A: But the reality is what are you going to do with that money, and will it benefit you at retirement? If it’s better to leave it in so you get more money when you retire, leave the money there

H: Well I’m sure Jack’s going to celebrate his 50^th birthday with a little red sports car that he’s always wanted?

A: That’s a life crisis –

H: I’m sure that will take care of the lump sum

A: That’s a life crisis issue!

H: Exactly, not just financial! I’m going to go home now and open those letters that I haven’t dared because I’m afraid of the bad news, and for others watching who are also going oh my God that’s me, I need to do something – what would your thoughts be about what they should do this afternoon or tomorrow?

D: It is, open that envelope, have a look, don’t be too worried about it, take into account all the circumstances, have a think about it and take some action. Don’t keep deferring things

A: Discipline, discipline and discipline are my three words. In order for you to have the pension you want, you need to be disciplined in what you spend today. Discipline and sticking to your pension plan. And the third discipline is being aware of how much you want when you retire. Keep your discipline, keep that number in your mind, because the good thing is if the stock market goes well you may hit that number sooner than you think

H: And it seems to me the other word is control, it’s better surely to be in control of your own

A: Yes

H: Finances than to have that nagging doubt in the pit of your stomach that you’re not going to have enough money for your retirement

A: Yes

H: So that’s fantastic. Thank you very much, really interesting, thank you for coming in and for answering all those questions. Sadly that’s all we’ve got time for on this Pension Surgery, if we didn’t answer your question today but you’d still like to hear from our retirement specialist then send us an email with your question and your details of course and send it to pension.surgery@prudential.co.uk. As you know Prudential are retirement experts and here to help so if you’re interested in getting more information about anything that you’ve heard on this programme then give Prudential a call on 0845 600 1377, let them help you get on track. The lines are open from 8am to 6pm Monday to Friday and may be monitored or recorded for quality and security purposes. Thank you for joining us today and remember great retirements don’t happen by accident.

We are retirement experts and we’re here to help – so if you are interested in getting more information about anything discussed on this programme, please give us a call on 0845 600 1377* and let us help you get on track. Lines are open from 8am to 6pm Monday to Friday

*Calls may be monitored and recorded for quality and security purposes

This is a general discussion and does not constitute advice. If you need advice on your own personal circumstances please contact your financial adviser. The value of an investment may go down as well as up, and your fund value in future may be less than the payments you have made. Tax information is based on our understanding as at September 2009, of current taxation, legislation and HM Revenue & Customs practice, all of which are liable to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances. Alvin Hall is an independent financial consultant, and all comments and opinions are his own, and not necessarily shared by the Prudential.

We are retirement experts and we’re here to help – so if you are interested in getting more information about anything discussed on this programme, please give us a call on 0845 600 1377* and let us help you get on track. Lines are open from 8am to 6pm Monday to Friday