What does flexibility, freedom and choice in terms of financial planning mean? I take this to mean, I can do what I want with my money, when I want, without prescription and perhaps most importantly I can afford to do this.
We have received many calls over the course of the last few months where an interest has been shown in giving up a secure stream of income, with escalation as well as an on-going stream of income for a dependant. These are members of the public looking to forego the benefits of a final salary pension.
The risk of providing this secure stream of income sits with the employer. This is underpinned by the Pension Protection Fund which offers a safety net should the employer fail. Moving away from the final salary scheme transfers the risk of providing this benefit from the employer and shifts the investment risk to the former scheme member. Why transfer risk from somewhere else to you? In most instances remaining within a final salary scheme for most people is likely to be the best course of action. It is not at all uncommon to be in retirement for 20 years. A couple could have a joint retirement time period of 25 years plus; that’s a lot of income to enjoy!
As mentioned, obtaining choice, flexibility and control starts through securing the cost of your essential monthly commitments such as food, utilities, council tax and clothing; often estimated to be at least £1,500 per month.
Your final salary scheme will go someway to ticking off this essential spend. When coupled with the State Pension, another source of secure income, you may be achieving your essential monthly income requirement. It should be noted both of these income streams will contain an element protection against the rising costs of living.
But I want control and flexibility!
So look to your other investments and savings to give you this objective. We have partially secured or secured all of your essential income spend each month in retirement through your defined benefit scheme and State provision. You can now afford to be more adventurous with any investment strategy. The flexibility you desire can be provided through cash savings, general investments, any ISAs and then any defined contribution or money purchase plans (post age 55). If death benefits are a concern, often cited when pension transfers are being considered, the cost of basic life cover for a healthy life remain competitive particularly when compared to the cost of giving up an inflation proofed income stream for life.
As always having some direction with your financial planning is important.
do I have a financial plan?
what’s coming in,
what’s going out,
what’s important to me,
who do I want to help out,
when do I want to achieve these things by?
A list of desires without a plan is simply a wish list.
If you want to start planning and putting in place firm financial foundations please contact the planning team at Wingate