Pension Pots

If you had the foresight to pay into a pension plan a few decades ago you will now have a pension pot, hopefully of gold to dip ino at the end of your very own rainbow! If you’re a property owner you’ve also benefitted from some amazing growth in property values. Did you know the average property has nearly tripled in value over the last 20 years?!

We TOYLers are lucky enough to have another guest blog from David Forsdyke at Knight Frank Finance. The Coronavirus Pandemic and the risk or results of contracting Covid-19 – The acute and possible chronic effects of ‘Long Covid’ have made many of us think in a rather more concentrated manner about the future as well as the here and now. Living with the current amount of  uncertainty is hopefully temporary but managing uncertainty especially as we get older is going to be key to having a happier TOYL and avoiding unnecessary stress, financial or otherwise. Here David discusses how your pension pots and your property can work for (and against) your best interests. More choice can make decisions tricky and ensuring the best outcome for you as an individual more of a challenge. However fear not, David is here to see you through the pitfalls! That or cash it all in and get jam today but live on bread and water tomorrow!

Please also be aware there have been numerous cases whereby scammers have stolen pension pots using rogue investments etc leaving the retiree literally penniless without, as the old colloquialism says ‘a pot to piss in’

Below are a couple of links that help avoid the scammers:-

PensionWise – UK Gov

Advice – Age UK 

You have probably spent decades building up your pension and making sacrifices to do so, so don’t risk a scammer stealing your pot of gold at the end of your rainbow!

Please don’t think for one minute you are too smart to be scammed – probably the most intelligent man I know was convinced by the ‘Police Fraud Squad’ to put several thousand pounds in an envelope and send it to a private address, all the while with his wife on his shoulder literally screaming “it’s a scam” – If he can be scammed, I certainly can and probably you too!

So, over to you David – I know for sure he’s a safe pair of hands so check this out and contact him directly for advice if interested!

Growing numbers of pension savers have withdrawn money from their pension pots during the pandemic.

Figures from HMRC reveal 347,000 people withdrew from their pensions during July, August and September 2020 — up 6% compared to the same quarter last year. The uptick runs contrary to seasonal patterns, according to HMRC, and will likely raise concerns that increasing numbers of borrowers may see shortfalls in their pension when they need it later in life.

David Forsdyke, Later Life Finance expert at Knight Frank Finance, suggests this increase in pension withdrawals is likely to be connected to the pandemic, as a growing number of people look to replace lost income, to support their family or shore up their business. “In some circumstances, lifetime mortgages can provide welcome funds to plug temporary financial pressures, or longer-term shortfalls in income. They allow older homeowners to unlock equity they have built up in their home over many years, while continuing to own and live in it. The cost of these mortgages has dropped dramatically in recent years, and the flexibility they now offer is making them very attractive.”

David outlines three options available to homeowners, with a lifetime mortgage:

  1. You can set up what’s known as a “drawdown facility”

Sometimes this is known as a reserve facility. This is an amount pre-agreed when the lifetime mortgage is first taken out and allows you to withdraw (draw down) these funds when you want them. This can be on a regular or ad hoc basis, and the advantage is that you won’t pay any interest until you have withdrawn the money. This sounds ideal if you need to top up your income, or needs funds at different times, and it gives you control over how much and how often you withdraw. Borrowers must be careful not to withdraw the whole facility too soon though, as you may find it very difficult to access additional funds in the future.

  1. You can set up an “income” lifetime mortgage

There are products that pay a fixed amount of ‘income’ each month. With this option, you would select a fixed amount to be paid to you each month and also a fixed term over which you will receive these payments. The only downside is that the payments don’t take account of inflation and can’t be extended if you find you need the additional money for longer.

It’s important to remember that the regular payments are not actually income; they are borrowing. They look and feel like income, but do not need to be included as income on your tax return each year.

  1. You can borrow a lump sum

For some people, a simple injection of funds could help them or their business survive the lockdown. Interest rates for lifetime mortgages are at their lowest ever, and borrowing now could be a wise decision. However, such borrowing is a long-term commitment, and care must be taken not to cause yourself a problem in the future. Make sure you take professional advice.

Tax efficiency

Borrowing against your property rather than withdrawing from pensions can have tax advantages. Because borrowing is not regarded as taxable income, it means you don’t risk stepping into a higher income tax bracket by using your property wealth. You do need to be careful if you are claiming means-tested benefits though, and we recommend you speak with an adviser about this to check there are no adverse effects. For some homeowners there are also potential Inheritance Tax advantages in creating debt against property.

If you would like to know more about Lifetime Mortgages or discuss any of the above, please get in touch with David and his team on 01483 947 764, or email david.forsdyke@knightfrankfinance.com, or find out more about their Later Life Finance services here.

Before you make a mortgage application, Knight Frank Finance will carry out a full review to establish your needs and preferences and if you meet the criteria, they will give advice and make a recommendation to you. Knight Frank Finance do charge a fee for mortgage advice which is typically payable on completion. An initial consultation is free of charge. All mortgages are subject to status.

Knight Frank Finance LLP is a limited liability partnership registered in England and Wales with registered number OC322399. The principal office of Knight Frank Finance LLP is situated at 55 Baker Street, London W1U 8AN. Knight Frank Finance LLP is authorised and regulated by the Financial Conduct Authority under Financial Services Register number 459093.

David Forsdyke DipMAP

Associate, Later Life Finance

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