The pension crisis and how to survive it - we explain all

The state pension fund is running out - Tricia Phillips explains what this means as well as how you can ensure that whatever happens, you can face life after work with confidence

Tricia Phillips

The state pension is groaning under pressure from an ageing population.
A report from Government advisers has revealed the National Insurance Fund, which pays state pensions and other social benefits, will run out of cash in the 2030s .
This means future pensioners face lower state pensions or younger workers may get slapped with higher National Insurance contributions.
Andrew Tully, pensions technical director at Retirement Advantage, said: “There is no cast-iron guarantee that the system pensioners enjoy today will be around in the same guise in the years to come, so it makes sense to take control of our own retirement future.”

With uncertainty ahead, here’s some top tips and advice...

15 top tips to help you save

1. Don’t rely on the state pension - Whatever your age. The state pension age keeps rising. Young people now face working until their 70s and beyond before they will qualify - and get less than they expected.
   
2. Pensions aren’t as complex as they seem - During your working life, you put a bit of cash away from your earnings each month and that builds up to create a pot of money to see you through retirement. Then you cash them in and buy a pension income.
   
3. It costs less than you think to save - Tax relief on pension contributions is a generous Government giveaway. Every £100 you put into a pension only costs you £80 with tax relief. For higher-rate taxpayers it’s even better.
   
4. Start saving early - In your 20s, or as soon as you start work, is the time to start the long-term savings bug. Andrew Tully says to build up a £100,000 pot by age 65, you’ll need to save £91 a month from age 25, £148 from age 35 and £266 from age 45. This is because of compound interest – where you earn interest on interest over the years.
   
   

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5. Stay autoenrolled in your workplace pension - Don’t opt-out of a workplace pension – it’s turning down “free money” from your employer. Under auto-enrolment, you make contributions into your workplace pension and your boss chips in to boost savings.
   
6. Put in more than the minimum - The current minimum legal contributions into workplace schemes are 1% from workers and 1% from bosses. This increases to 3% from workers and 2% from bosses in April, and to 5% from workers and 3% from bosses in 2019. Some firms will match employee contributions up to a higher level.
   
7. Don’t forget about your pension savings - Don’t leave your hard-earned cash languishing. Keep an eye on it to ensure you’re on track to build up the funds you will need. Take notice of annual statements so you know where you stand and can decide if you need to chip in a bit more.
   
8. It’s never too late to start saving - Workers in their 50s still have time to build up a bit of a nest egg. Chances are you’ll be working until your late 60s, so there is time. Every £1 saved into a pension will give you that plus a bit more in retirement.
   
9. If you’re self employed - You’ll need to sort out your own pension savings. Under 40s can use the Lifetime ISA, which gets a 25% Government top-up on up to £4,000 each year, until age 50. Over 40s will need to set up a private pension. Visit unbiased.co.uk to find an adviser.
   
10. Think you can’t afford to save - If you get a shop-bought coffee each day at £2-plus a pop, giving up one or two a week will free-up cash to save for your older age. Once you start looking at small ways like this to make savings, you’ll be well on your way to a more secure financial future.
    
11. Keep an eye on costs - Fees charged by pension providers can vary and eat into your funds. Jamie Smith-Thompson, managing director of pension advice specialist Portafina, says: “What seems like a small change could make a big difference. For example, reducing your annual provider fees by just 1% could mean £25,000 more in your pot over 20 years.” Check the market for schemes with lower fees and think about switching.
    
    
    
12. Review where - your money’s invested - Ensure your pension savings are working hard for you. Check the funds you’re invested in match your attitude to risk. Keep an eye on how your savings are growing, and move funds if you think you can achieve a better return.
    
13. Flexibility to suit your needs - The pensions freedoms put you in control of when and how you access your savings from the age 55. But be wary of dipping into your pot too soon. Get free advice from the Government’s Pension Wise via pensionwise.gov.uk or call 0800 138 3944 to book an appointment.
    
14. Find old pensions - Most of us will work for a number of employers and it can be easy to lose track or forget about funds from past jobs. Get free help to track down lost pensions from the Government at gov.uk/find-pension-contact-details .
    
15. Don’t let crooks steal your cash - If you get a cold call offering a free pensions review or an investment offer that sounds too good to be true, put the phone down. Crooks are just waiting to rip you off. Don’t rush into transferring funds or accessing savings before ensuring a person or firm is on the Financial Conduct Authority’s register at register.fca.org.uk . Also check the FCA Scam Smart page at fca.org.uk/consumers/protectyourself-scams .
    
    Culled from Mirror Pension
    

Start investing at 50, get a £1m pension pot at 67

Too late to start? Lottie Wride is 46 and has no pension Credit: Jay Williams

• Sam Brodbeck

19 September 2017 • 7:45am

Not long ago, people in their 50s would be deemed to have left it too late to begin saving for retirement. Only a lifetime of pension contributions, allied with some investment growth, could produce a large enough pot to produce a viable income in later life, the conventional wisdom went.
But while “the magic of compound interest” does allow money put aside early to grow spectacularly, most young people do not have much spare cash to invest. Only in middle age can most workers begin to put serious sums aside.

Wages peak in the mid 40s and 50s (with men’s salaries reaching their high point about a decade later than women’s), according to official statistics.

Not only are incomes at or near their zenith in middle age, but two major costs of living are likely to have declined or ceased entirely. Mortgage terms are typically 25 years, meaning that many people who bought properties in their early 20s will be debt free by their 50s.
Likewise, the cost of raising children dwindles once they embark on higher education courses funded by student loans.

In figures: the pension pot you can expect if you start at 50

Generous tax perks on pensions and Isa investments help even those who start to save from scratch at 50 to build a sizeable pot quickly.
A 50-year-old who earns, say, £70,000 a year could, starting from nothing, build up a pension worth £985,800 by 67 if they saved the maximum amount allowed each year.
This figure, calculated for Telegraph Money by pensions firm Old Mutual Wealth, assumes annual returns of 4pc after charges, a realistic rate given today’s investment market, and that the pensions “annual allowance” remains at its current level of £40,000 a year.
Even if annual returns were 75pc lower (at 1pc after charges) the pot would be worth £744,600 by 67.

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Saving £40,000 a year may seem a tall order, but remember that this figure includes the tax relief that is applied to all pension savings. Someone who earns £70,000 a year would have to contribute only £27,000 from their own bank account to add £40,000 to their pension pot.
Someone who pays the basic rate of 20pc would have to spend £32,000 to save the same amount.
If saving through a personal pension, rather than a scheme operated by a company, higher-rate taxpayers will need to claim back the extra 20pc tax relief via a tax return. All pension savers receive relief at the basic rate automatically.
Under “automatic enrolment” rules, employers are required to save into a pension on your behalf. Many firms will match the money you save, capped at a proportion of salary; 5pc is a typical figure.
When it comes to taking money out of your pension in retirement, you can take 25pc as a tax-free lump sum and then pay income tax on further withdrawals, just as you would on any other income.
Isas – another main option for building up a pot of savings for retirement – work the other way round: you contribute out of your after-tax income but make withdrawals tax free. In the 2017-18 tax year you can put up to £20,000 into an Isa. Saving at that level for the same period as the pension example (17 years) with 4pc returns would produce a portfolio worth £372,295.
Since the “pension freedom” reforms were introduced in 2015, unspent pensions have been able to pass down the generations extremely tax efficiently. Isas, on the other hand, form part of your estate on death and will be subject to inheritance tax.
It can, therefore, make sense to hold a combination of pensions and Isas in retirement, spending the latter first if you want to maximise your legacy.

Is the decade before you retire the most important?

While some begin to invest only when they reach their 50s, millions of us have been squirrelling money away for decades.
New research produced by Aegon, the insurer, offers useful insight into the relative importance of investment gains and your actual contributions for those who started early. In essence, investment returns become gradually more important, relative to the amount you save (see graphic, up).
If we look at someone who has saved for 40 years, the analysis found that the saver’s contributions accounted for the bulk of the portfolio’s value in the first 30 years – £83,484 against £71,836 from investment returns.
Yet in the last 10 years of investment, the opposite was true. During that period, investment returns were far more important, accounting for £80,680 of the total, against £33,844 in contributions. However, as Aegon’s Nick Dixon pointed out: “It’s important to remember that investment losses will have as big an impact as investment gains.”
Mark Fawcett, the chief investment officer of Nest, the government-backed provider of workplace pensions, said: “This research debunks investment orthodoxy that says you should maximise risk when you’re young. What really matters are investment returns once you’ve built up a decent pot towards the end of your working life.”
Nest, which runs the savings of more than five million people, based its investment strategy around this concept. It takes relatively little investment risk for younger savers on the grounds that any missed returns can quickly be recovered once pot sizes are larger.

Telegraph

One in 5 Brits are being lured into holiday compensation claims - that could lead to a prison sentence

A worrying 9.5 million people have been approached about making a potential claim, according to watchdog ABTA

Emma Munbo

Abta said in some cases, holidaymakers were being talked into making claims while on holiday (Image: Getty)

Millions of holidaymakers are being teased into making compensation claims for sickness abroad - despite not actually falling ill, it's been revealed.
According to a YouGov survey, almost one in five people have been contacted about making a compensation claim for holiday sickness to date - however, they're unaware that false or overinflated claims could lead to a jail sentence.
The most common way people said they were approached was over the phone, followed by text and email.
Some people also reported being contacted on social media and some were approached in person, including in airports or while on holiday.

The figures have been released as part of Travel Association ABTA’s ‘Stop Sickness Scams’ campaign which highlights that false claims are costing the travel industry tens of millions of pounds each year.
The body is now calling for the urgent closure of a loophole in the law, which enables claims management companies and legal firms to make more money in fees from sickness claims abroad, than they’re able to from personal injuries in the UK.

ABTA said that some firms are contacting people out of the blue, encouraging them to make a false claim and often misleadingly saying there is a pot of money waiting to be claimed - which isn't necessarily the case.

In reality, making a false compensation claim is an act of fraud, and if prosecuted could result in a fine, criminal record or jail term of up to three years.
In October 2017 a couple from Merseyside received a prison sentence after being found guilty of making a fraudulent sickness claim. Deborah Briton was sentenced to nine months and her partner Paul Roberts was jailed for 15 months.

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ABTA's findings come six months after the Government announced its plans to clampdown on the rise in false sickness claims.
It's now calling for a summer 2018 deadline to ensure this year's holidaymakers don't fall victim to the so-called scams.
Mark Tanzer, ABTA’s chief executive said: "Unscrupulous claims management companies are encouraging people to make a false sickness claim which could land them with a large fine or even a prison sentence.
"False claims don’t just make UK holidaymakers vulnerable to serious penalties – they’re also costing travel companies and hotel owners tens millions of pounds and tarnishing the reputation of the British abroad.
"Closing the loophole in the law in time for the 2018 holiday season will make a big difference in tackling fraudulent sickness claims."
If you receive a cold-call urging you to make a holiday sickness claim, you can report it to the Claims Management Regulator.
Culled from Mirror pension