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25 Feb 2019
by James Biggs

Financial wellbeing strategies for the over-50s that aren’t just about pensions

I saw a birthday card recently that said: “We will be friends ‘til we’re old and senile… then we will be new friends!” This made me smile and, being of a certain age, contemplate my own life after work. 

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In our pre-retirement courses, we talk smilingly about the four life phases: 

1. Lager

2. Aga

3. Saga

4. Gaga

I’m midway between to the last two - actually nearer to Saga in age, but Gaga if you asked my family! 

The image we use for the Gaga phase is a tartan blanket. The idea is that, by then, we would hope to be on the final stretch; comfortable, warm and financially ok. For me, that means having enough money not to worry - and my sons having power of attorney. 

So, how do we get there? And what can employers do to help ensure their staff can get there? The workplace pension is an obvious start – and a hugely important building block. But what else?

Here are some ideas for creating a workplace offering that genuinely helps people achieve post-work financial harmony:

Embrace platforms
But platforms are so 70s! Yes, but I’m not talking about Slade here. Offering a workplace savings platform can play a huge role in encouraging saving and boosting financial wellbeing. A typical platform might include:

  • Individual savings account (ISA)
    Always sensible to have an easier-access alternative for those looking to tax-efficiently save some cash, without locking it into a pension. And longer-term, ISAs are an excellent vehicle for saving for retirement alongside your pension. All proceeds from ISAs are paid tax-free - and with a £20,000 per person annual allowance, it is possible to build up a substantial pot (and couples should make sure they’re making use of both allowances). 
  • General investment account (GIA) 
    For holding direct investments in collective funds (such as unit trusts or OEICs) outside of the tax-favoured wrappers. Even investments held outside of pensions and ISAs can provide valuable opportunities when planning a tax-efficient retirement income. Investors can make use of the annual capital gains tax (CGT) allowance of £11,700 (again, this is per person, so couples should make sure their finances are arranged to make use of both allowances). Those with low income, can make use of the £5,000 savings rate band when taking withdrawals.
  • Self-invested personal pension (SIPP) 
    Useful both pre- and post-retirement, with loads of flexibility and options for employees both saving for the future, and using their pension pot to provide a flexible income (technically known as flexi-access drawdown) once they’ve finished work. 

In fact, with careful planning (few people arrive here by accident) it can be possible for a couple to receive over £60,000 of tax-free income per year, by clever use of tax allowances and the different options available. None of this is remotely in the domain of evasion – just good old-fashioned planning.

Budget-planning tools 
The over 50s are the perfect audience for modellers and budget-planning tools, as they prepare for potentially significant changes in both their incomings and outgoings. At this point, mortgages might start looking less painful, the children may be less reliant financially (but it never ends, apparently!), and so it’s a good time to start crunching the numbers. 

For many, the plan post-work is to have enough to live on, with some spare for rainy days, and then pass on to the children, if any is left. There are some great budgeting tools available – and often included as part of a savings platform. Providing access in the workplace, highlighting them in any relevant employee communications and incorporating them into any pre-retirement workshops can be a great way to focus the mind.

Equity release 
This is becoming increasingly relevant – and popular. It requires expert planning and advice, but in the right circumstances, equity release arrangements can offer many benefits such as:

  • release of capital so that you and your children can enjoy the cash ‘now’ (and you can see them enjoy their inheritance, rather than observing from a cloud!)
  • reduction of overall asset value for inheritance tax calculations in the longer term
  • enabling you to use the proceeds to fund tax-efficient savings vehicles (in both names where appropriate) to enable you to make best use of the various tax allowances for ongoing income – as well as ISAs and pensions, this could include National Savings & Investments (NS&I) or onshore and offshore bonds. 

Pensions will always have a special place in my heart. And the workplace pension is the essential starting point for most people’s retirement savings. A pension remains one of the most tax-effective ways to accumulate a large pot for retirement. It allows income tax and, where salary sacrifice is used, National Insurance Contribution (NIC) savings, employer contributions (the most valuable thing of all!), and the ability to take 25 per cent of your fund tax-free once you reach age 55. 

But holistic workplace savings schemes give employees the option – and tools - to plan for over £60,000 per annum tax-free in a joint household. And if we deplete all our savings ahead of our pensions, then this can also be helpful. Nowadays, with the right planning, any pension funds left behind on death can go to any beneficiary without inheritance tax liabilities.

How is this achieved in the workplace? A well-rounded financial wellbeing strategy, aimed at segmented groups where possible, combining the power of technology and humans. Online tools are great for day-to-day money management, but when it comes to the BIG plans, people still like to deal with people.

The author is James Biggs, consultancy & wellbeing partner at Lorica.

This article is provided by Lorica. 

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