Money To The Masses http://moneytothemasses.com Putting you in control Wed, 22 Oct 2014 14:08:44 +0000 en-GB hourly 1 Cut the cost of your ski holiday by doing a home exchangehttp://moneytothemasses.com/quick-savings/tips/how-to-cut-the-cost-of-your-ski-holiday-by-doing-a-home-exchange?utm_source=rss&utm_medium=rss&utm_campaign=how-to-cut-the-cost-of-your-ski-holiday-by-doing-a-home-exchange http://moneytothemasses.com/quick-savings/tips/how-to-cut-the-cost-of-your-ski-holiday-by-doing-a-home-exchange#comments Wed, 22 Oct 2014 14:08:44 +0000 http://moneytothemasses.com/?p=17168 How to cut the cost of your ski holiday by doing a home exchange

How to cut the cost of your ski holiday by doing a home exchangeWith a 36% rise in mountainside properties, home exchanges are a new trend for ski holidays on a budget. Home exchanges have become increasingly popular with families travelling on a budget during the summer months but now more families are using them for winter holidays as well.

Owners of second homes, chalets and apartments in mountain areas are realising they are sitting on underused assets. Home exchanging, where you swap homes for a short period of time with other ‘home exchangers’, opens numerous opportunities to get all or part of your holiday accommodation at no cost. Many of the properties come complete with sledges, snowboards and skis reducing even further the cost of your ski holiday.

HomeExchange.com is a main operator in the home exchange industry and has over 55,000 properties in over 150 countries listed on its site. For a fee equivalent to £5.95 per month (charged annually) members can list their property, browse all available properties and arrange exchanges with other members. The site also hosts a lively forum which includes readers’ experiences when exchanging homes. Keen home exchangers love the flexibility, feeling part of a community and the lack of rental paperwork that comes with sharing their home with others.

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How much does income protection insurance cost?http://moneytothemasses.com/quick-savings/insurance-2/income-protection-insurance-insurance-2/much-income-protection-insurance-cost?utm_source=rss&utm_medium=rss&utm_campaign=much-income-protection-insurance-cost http://moneytothemasses.com/quick-savings/insurance-2/income-protection-insurance-insurance-2/much-income-protection-insurance-cost#comments Tue, 21 Oct 2014 17:00:33 +0000 http://moneytothemasses.com/?p=16971 How much does income protection insurance cost?

How much does income protection insurance cost?The cost of income protection insurance depends on a number of factors such as age and the level of cover chosen amongst others. It is important, therefore, to compare income protection insurance cover across a number insurers to make sure you are getting the best deal.

What factors influence the cost of income protection insurance?

Amount of cover

Income protection insurance benefits can be up to 70% of your gross income, but lower amounts can be covered. The minimum that should be covered is the amount of your basic bills such as mortgage, food and utility bills. The lower the amount of cover you have the lower the monthly premiums.

What is covered

Income protection insurance can cover sickness, accident and redundancy or any combination of these three. The extent of cover will be reflected in the cost of your monthly premiums and in the choice of insurer as some do not offer redundancy insurance.

When income payments commence

With all income protection insurance policies there is a deferred period built in. The deferred period is the period between first being off work and when the benefit begins. This is typically between one month and three months but can be longer. The longer the deferred period on an income protection insurance policy the lower the premium.

Guaranteed premiums

The premiums on a standard income protection policy can be increased by the insurer over time. The insured can, however have premiums guaranteed at the outset so they will not increase over time. This premium guarantee will mean that the cost of the monthly premiums will not increase from those agreed at the outset of the policy.

Medical history

If you have a history of health issues your premiums are likely to be higher to reflect the increased risk of you being off work. When you apply for income protection insurance you will be required to a complete a health questionnaire which will be used to set the premiums on your policy.

Age

The older you are the higher the income protection premiums will be as you are more likely to be off work sick than a younger person.

Occupation

Some occupations are riskier than others with regards to illness or accidents and this will be reflected in the income protection premiums.

How to find the best and cheapest income protection insurance policy

The best way to compare income protection insurance quotes is with this online income protection tool*. This is not only one of the best comparison tools I’ve found but I’ve also vetted the service provided by the company, which I would recommend.

Further reading

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Latest interest rate predictions – when will rates rise?http://moneytothemasses.com/owning-a-home/interest-rate-forecasts/latest-interest-rate-predictions-when-will-rates-rise?utm_source=rss&utm_medium=rss&utm_campaign=latest-interest-rate-predictions-when-will-rates-rise http://moneytothemasses.com/owning-a-home/interest-rate-forecasts/latest-interest-rate-predictions-when-will-rates-rise#comments Mon, 20 Oct 2014 13:00:39 +0000 http://moneytothemasses.com/?p=12789 bank of england This article is continually updated to bring you the latest analysis on when interest rates are likely to rise. You can now enter your email address here to receive updates to your inbox.

If you wondering whether you should fix your mortgage rate, but don’t know a mortgage adviser whose opinion you trust, then an award winning mortgage adviser and contributor to MoneytotheMasses, is happy to help. You can ask his opinion for FREE with no obligation on your part, just click here).

When will interest rates go up?

In summary: until recently the market consensus was that the Bank of England would increase interest rates in the first few months of 2015. This has shifted due to recent poor economic data and interest rates are now not expected to rise until mid 2015, after the general election. See bullet points below for more detail.

The forecasting of the Bank of England base rate has been transformed in recent months. First of all Mark Carney, the Governor of the Bank of England (BOE), issued new ‘forward guidance’ on when the Bank of England will raise interest rates.

This is a policy which he employed during his previous role in Canada’s central bank to try and control the market’s expectations of when interest rates will rise. The reason for doing this is that an expectation of a rate rise is as important as the actual rate rise itself. If a market thinks that the BOE will increase rates then the cost of borrowing throughout the economy will rise. This can prove damaging for a stuttering economic recovery, meanwhile artificially low interest rates also make cash deposits unattractive, which in turn boosts consumer and corporate spending.

Mark Carney originally created a notional link between the UK unemployment rate and BOE base rate. In a pledge to keep rates lower for longer Mark Carney said that rates would not rise until UK unemployment fell below 7%. But this threshold has now been hit, somewhat unexpectedly, so Mark Carney had to ditch the unemployment trigger when it looked like a breach was imminent, instead replacing it with 18 economic indicators.

So now Mr Carney has moved the goal posts on when interest rates will likely go up:

  • the BOE has now decided it won’t tie interest rate rises to any particular economic indicator but a range of 18 of them
  • the market had previously thought that the the BOE’s first interest rate rise was unlikely to occur before the General Election in May 2015
  • But at the annual Mansion House Speech on June 12th Mark Carney dealt a shock by saying that rates could rise before markets think they will. And recently stated Mark Carney stated that the first rate rise is getting closer. The market took this to mean that interest rates would go up at the beginning of 2015.
  • And the latest minutes from the BOE rate setting meeting show two committee members once again voted for a rate rise.
  • But the latest economic data has shown that economic growth prospects have faltered plus recently volatile stock markets mean have meant expectations of when interest rates will rise have jumped back to the middle of 2015.
  • Mark Carney keeps reiterating that when rates do rise it will be gradual and, in the medium term, materially below the 5% level set on average by the BOE historically. It is expected that the first interest rate rise will occur in the summer of 2015 to 0.75% followed by further 0.25% increases every few months

So the current forecast of when interest rates will go up is: Markets are now pricing in the first rate rise (to 0.75%) as early as mid 2015 with interest rates increasing again to 1% by the end 2015.

Whilst the BOE is now claiming that not just one economic indicator will be used in any ‘forward guidance’ of when rates will rise, a range of them will still determine when they actually do put them up. So economic indicators are still important in judging when interest and mortgage rates are likely to rise. Below is a roundup of the most important indicators which will influence when interest rates go up:

So what might influence when rates rise, despite the change in the BOEs ‘forward guidance’  

  • Inflation has unexpectedly fallen – in September the official measure of UK inflation fell again, this time from 1.5% to just 1.2%. The lowest in 5 years! Don’t forget that the Bank of England’s target inflation rate is 2% (with anything above 3% getting them a slapped wrist from the Chancellor). To combat inflation interest rates would be increased. Recent sharp falls in inflation have fuelled speculation that the first interest rate rise will now not occur until early 2015.
  • Increasing official support for a rate rise?  – in August the Bank of England’s Monetary Policy Committee (MPC), who are the guys who decide the UK base rate, once again voted to keep the base rate at 0.5%. But what ruffled a few feathers was that the vote was not unanimous for the first time in 3 years. 2 out of the 9 committee members voted for a rate rise. Also minutes from a previous meeting suggested the BOE was ”surprised by the low probability attached to 2014 rate rise”. However, in September the 7-2 split remained suggesting that while an interest rate rise is on the way it’s perhaps more likely to be in 2015.
  • The UK economy is growing again –  the Office of National Statistics has confirmed that the UK economy grew by 0.8% in the first 3 months of 2014. And The National Institute of Economic and Social Research has estimated that UK economy grew by 0.9% in the second quarter of 2014 – which would make it the strongest quarter in 4 years. This is good news and the evidence suggests that economic growth is back at its pre-crisis level, although a growing economy increases the prospect of a rate rise.
  • There’s optimism about future economic growth - be it the UK services, manufacturing or construction sectors data has pointed to improved signs of economic recovery. Importantly the services sector, which accounts for about 75% of the economy, has been growing at its fastest rate in years. Also, there are signs of continued optimism with a recent survey of British business confidence coming it at its highest rate in 20 years! With the economic recovery becoming increasingly entrenched it has led to some analysts expecting (and in some cases demanding) a normalisation of interest rates sooner than suggested by the official guidance.
  • Unemployment is falling – The number of people out of work fell by 154,000 to 1.97 million (a six-year low) in the three months to August. The UK unemployment rate now sits at 6%, below the BOE’s old ‘forward guidance’ threshold, a threshold the BOE hadn’t expected to be breached until 2016. But interestingly wage growth finally ticked up from previous historic lows. A lack of wage growth is a sign of slack in the economy which would make an early rate rise less likely. But if wage growth continues to improve then calls for an interest rate rise will increase.
  • UK economic growth forecasts are being upgraded – such is the optimism for UK economic growth that the British Chambers of Commerce, the BOE as well the International Monetary Fund (IMF) have upgraded forecasts for economic growth in 2014. The IMF in particular now expects the UK economy to grow faster than any other major European economy in 2014, while the BOE now expects a growth rate of 3.5%.
  • Governor Carney is on a mission – Mark Carney took up the post of Governor of the Bank of England over a year ago and he is  making it clear that interest rates will not be rising until there is clear evidence that the economy is growing but more importantly that unemployment is falling. Both are now occurring so watch this space.

So should you rush to fix your mortgage now while rates are low?

Fortunately I’ve answered this question in my  post ‘Should you fix your mortgage rate now?‘ But if you want more help or advice then you can contact an award winning mortgage adviser here.

 

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How much do I need to retire?http://moneytothemasses.com/saving-for-your-future/pensions/how-much-do-i-need-to-retire?utm_source=rss&utm_medium=rss&utm_campaign=how-much-do-i-need-to-retire http://moneytothemasses.com/saving-for-your-future/pensions/how-much-do-i-need-to-retire#comments Mon, 20 Oct 2014 12:09:18 +0000 http://moneytothemasses.com/?p=17154 how much do i need to retireReader question: How much do I need to retire?

I have been reading a lot about the new pension rules and being able to cash in my pension pot. However, I do not want to withdraw money from my pension in this way as I am worried that it will run out. Also, I don’t know how much income I need when I retire. What is the average pension income and how much pension do I need? I’m really confused, any help would be appreciated.

My response

There’s been a lot of press coverage over the new pension rules, especially concerning people raiding their pension and spending all their money. But how can you expect people to make sensible decisions when most people don’t know how much income they need to retire?

Interestingly a new piece of research by True Potential has found that:

  • people think they need £23,457 a year for a comfortable retirement income;
  • however the average UK pension pot could only support that income for 5 years;
  • and the reality is that the average pension pot could provide just over £6,000 a year, in today’s money!

So that’s a big problem. How do you work out how much income you need to retire and how big your pension pot needs to be to deliver it? Also, how much should you be putting into your pension? I’ll show you how to work this out, in minutes, below.

How much do you need to retire?

First of all you shouldn’t worry about what the average pension is or what the average income in retirement stands at. How much you need depends on your personal and financial circumstances.

The quick way to work out what you will get when you retire

Here is a brilliant pension pot calculator* which can be quickly used to work out what your pension pot is worth (if you have one already) and how much income you will get. You can also use it to see what age you can retire at; how much pension you need and how much extra you need to save to get the retirement income you desire. Best of all the tool is absolutely FREE! I have used it to find out how much my pension will be, and below I explain how to use it in the same way that I did.

Step 1 – How much income do I need to retire?

First of all, write down all your monthly outgoings such as bills. Include only those things that will continue once you’ve retired. Will you still be paying a mortgage? Think about how you are planning to pay off your mortgage.

Then simply total all these figures up to get a monthly figure.

Step 2 – How much pension will I get?

Now use this pension pot calculator* and enter the few simple details it ask, such as your age, your gender, your existing pension pot (if you have one) and your current salary. Finally enter when you would like to retire and any monthly pension contributions you are paying. Don’t worry if this is zero. Then click ‘calculate now’

You’ll then be presented with an estimation a the size of your pension pot when you retire, in today’s money. This figure assumes a 5% growth rate (which is the rate the industry regulator, the FCA, use as their mid range assumption) and inflation of 2.5%.

You will then see an estimated amount of tax-free cash (25% of your pension pot) which you can have tax-free and an estimate of the gross income you can take from the rest of the pension. Obviously under the new pension rules coming into effect from April 2015 you can take as much of your pension as you want as a lump sum, but, remember only 25% will be tax-free with the remainder taxed as income.

You are then presented with a summary of how far ahead or behind the sort of income that you will likely need in retirement you are, given your current salary.

Step 3 – Work out your net retirement income

Don’t forget that income from pensions is taxable. So while the calculated figures are in today’s money (i.e. taking into inflation) they are gross of tax. So open this PAYE calculator and enter the gross pension income amount into the calculator (making sure you set the age band to match your desired retirement age) and click ‘calculate’. Again, it is a FREE tool.

You will then see how much your net monthly pension income will be. Is this enough to meet your bills etc calculated in Step 1?

Was it not what you were hoping for?

The chances are that your pension pot is not worth as much as you’d hoped and your retirement income will be lower than you need. So now look at:

How much do you need to save into your pension?

One way to boost your retirement income is to pay more into your pension. To work out how much you would need to pay enter affordable amounts into the ‘personal  contribution’ section of the tool. It will automatically recalculate the amount of pension you might receive in retirement. By playing with this section of the tool you can see how much you need to pay into your pension versus what you can afford. Next…..

When can you afford to retire?

If your pension pot is not big enough to fund the retirement income you want then you may need to consider delaying your retirement. This gives you more time to pay into your pension and hopefully more time for your pension pot to grow. So alter the retirement age in the calculator to find out when you can retire. Working out when you can retire. Also don’t just focus on your pension income……

Do you need your pension tax free cash to pay off your mortgage?

Don’t forget to allow for any withdrawal of tax free cash you plan to take. Alter the amount you plan to take to see the impact on your potential income. Is there going to be enough in your pension pot to even pay off your mortgage?

Hopefully the above will give you an idea and possibly a reality check about your likely pension. Of course the figures are only estimates. I strongly recommend seeking the advice of an independent financial adviser before making any decisions regarding your pension planning. If you don’t have already know a financial adviser you can trust then you can find one here.

 

(image by Witthaya Phonsawat - freedigitalphotos.net)

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Best of the Sunday papers’ PROPERTY sectionshttp://moneytothemasses.com/news/best-of-the-sunday-papers-property-sections?utm_source=rss&utm_medium=rss&utm_campaign=best-of-the-sunday-papers-property-sections http://moneytothemasses.com/news/best-of-the-sunday-papers-property-sections#comments Sun, 19 Oct 2014 08:00:36 +0000 http://moneytothemasses.com/?p=16656 19th October 2014

The Independent

Take a tour of Britain’s most unusual homes

Rent levels reach record high

Here comes Crossrail: hot homes along London’s high-speed rail link

The Telegraph

Games of Thrones producer’s home for sale

Buy-to-let nightmare: £56,000 of damage and my insurer won’t pay

The world’s cheapest places to retire

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Best of the Sunday papers’ MONEY sectionshttp://moneytothemasses.com/news/best-sunday-papers-money-sections?utm_source=rss&utm_medium=rss&utm_campaign=best-sunday-papers-money-sections http://moneytothemasses.com/news/best-sunday-papers-money-sections#comments Sun, 19 Oct 2014 07:30:48 +0000 http://moneytothemasses.com/?p=16650 19th October 2014

The Independent

Charges related to car parking rising and leading to serious money woes

The markets might not  be calm but you should be

It is time to think about ethical money

The Telegraph

The latest annuities scandal: The pensions that shrink to zero

How markets perform before elections

‘I’ve had a horrendous experience with eBay’

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The latest MTTM Podcast – How to make it, How to save it, How to spend ithttp://moneytothemasses.com/news/podcast/latest-mttm-podcast-make-save-spend?utm_source=rss&utm_medium=rss&utm_campaign=latest-mttm-podcast-make-save-spend http://moneytothemasses.com/news/podcast/latest-mttm-podcast-make-save-spend#comments Sat, 18 Oct 2014 06:00:00 +0000 http://moneytothemasses.com/?p=15948 Money to the Masses podcastWelcome to the FREE MoneytotheMasses.com podcast.

MTTM Podcast episodes

You can listen to the latest episode of the podcast by clicking on the play button in the player below. To hear past episodes simply click on ‘More Episodes’ in the player’s top menu. Here is the full list of episodes:

  • Episode 19 – Changes to pensions & radio mentions
  • Episode 18 – Interest rate hikes & cashback sites
  • Episode 17 - Property Auction Tips And Money Regrets
  • Episode 16 – Christmas steals & train ticket deals
  • Episode 15 – Income protection, Private Jets and Investment Mantras
  • Episode 14 - Damien’s little nuggets (and the rules of money)
  • Episode 13 – Claiming Your Fuel Payment And Becoming A Field Agent
  • Episode 12 - Inside Estate Agents’ Minds And Back To School Finds
  • Episode 11 - Get a pay rise, credit myths & business start-up gems
  • Episode 10 – Lets talk about tax baby
  • Episode 9 - Buying, Selling And Letting Advice – The Property Special
  • Episode 8 - Huge Amounts on Current Accounts and You Can’t Go Wrong With Honest John
  • Episode 7 - Reader and Listener Question Special – Pensions, Trusts and IFA’s
  • Episode 6 – Big Picture Budgeting and The Fiver Challenge
  • Episode 5 – Organic Pear and Best Airfares
  • Episode 4 – Writing a Bestseller & Magnificent Melons
  • Episode 3 – House Buying Tricks and Life Insurance Tips
  • Episode 2 – Insider Secrets and DIY Investing
  • Episode 1 – Interesting Apps and Interest Rates

For those who don’t know, the show is jointly hosted by myself and Andy Leeks (author of the brilliant As They Slept – The comical tales of a London commuter) and aims to be informative as well as enjoyable. Every show is split into 4 sections:

  1. How to make money – covering ways to make money whether it be apps, websites, investing, business ideas or any way we can make you richer
  2. How to save money – this section teaches you how to not loose it. Be it saving, cutting bills, secret tricks or insurance
  3. How to spend money – this section covers how to spend it and how others do including celebrities.
  4. Reader / listener questions – I answer questions sent in by you guys!

Please have a listen below and if you do enjoy it then please thank us by downloading the podcast from itunes and leaving a 5 star review. I realise that you might listen to the podcast in the window below so be thinking ‘why the hell would I want to download it as I’ve already heard it once?’ Well by downloading it you will help push the show up the itunes charts and help us spread the word. Think of it as a thank you from you to us.

Download from iTunes

Alternatively here’s the show’s RSS feed – http://moneytothemasses.libsyn.com/rss.

Get in touch

If you want to get in touch, whether it’s a reader question or just to give feedback on the show then you can contact the show here.

Once again, please leave a review of the podcast on itunes here.

 

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The top 7 money lies we tell ourselveshttp://moneytothemasses.com/quick-savings/tips/top-7-money-lies-tell?utm_source=rss&utm_medium=rss&utm_campaign=top-7-money-lies-tell http://moneytothemasses.com/quick-savings/tips/top-7-money-lies-tell#comments Wed, 15 Oct 2014 04:49:31 +0000 http://moneytothemasses.com/?p=17124 The top 7 money lies we tell ourselves

The top 7 money lies we tell ourselves‘I don’t have enough money to save’

I realise it can be hard to make ends meet if you are on a  low income. However, saving just a few pounds every month not only adds up over time it can make you feel more in control of your finances. Saving can become a habit and next time you get a pay rise or bonus you will be more inclined to save it than spend it. Read – Start ‘big picture’ budgeting to start controlling your finances.

‘I’m not very good with money’

This is just an excuse usually used by people who can’t be bothered to control their finances. They can’t face all the paperwork and just throw today’s post in a pile with yesterday’s and the day before. Wake up! If you don’t control your finances nobody else is going to it for you. Read – Buy a shredder to get you started

‘I live for the present’

Living for the present is a great idea but you really do need to keep one eye on the future. Don’t let living in the present be an excuse to be reckless with your money as the future has a habit of wanting back the money that you borrowed today! Start putting a bit of money away now and it will soon grow. See – Regular Savings Accounts to the get the best rate on your savings.

‘If I could just get enough to pay off my debts I would be fine’

If this statement rings true with you then you need to understand how you got in debt in the first place. Believing this statement is an easy route to consolidated loans which will just make things worse unless can take control of your spending right now. Read – The 5 simple steps to clear your credit card debt

‘I don’t need to save for retirement as I will carry on working’

When we are young we don’t see any problem with the thought of carrying on working in our later years. From the viewpoint of excellent health and a stimulating job carrying on working seems an acceptable option. However, when we reach our later years our health may not be what we had hoped and continuing to work may not be an option. Unfortunately, financial problems will arise, if we have made no provision for your old age, resulting in a miserable later life. To get started read – Work out how much to save for retirement on the back of an envelope.

‘I deserve a pay rise but never get one’

We all feel we need a regular pay rise but obviously employers need to control the costs of their business and are sometimes reluctant to increase your pay. Instead of just sitting there accepting the situation why not create a plan to achieve a pay rise. Read – 6 tips on how to negotiate a pay rise to start you off.

‘I am going to start my own business’

We are entitled to dream a bit and one common dream is starting your own business. Unfortunately, this dream fades away for most people as they fail to take action to make this business venture a reality. Starting your own business needs determination, passion, and of course a good idea. Don’t sit around dreaming, start to make it happen by reading – Want to start a new business? How to create and develop business ideas

 

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How much income could I get from a £100,000 pension pot?http://moneytothemasses.com/saving-for-your-future/pensions/how-much-income-could-i-get-from-a-100000-pension-pot?utm_source=rss&utm_medium=rss&utm_campaign=how-much-income-could-i-get-from-a-100000-pension-pot http://moneytothemasses.com/saving-for-your-future/pensions/how-much-income-could-i-get-from-a-100000-pension-pot#comments Tue, 14 Oct 2014 15:00:42 +0000 http://moneytothemasses.com/?p=12501 What's your pension pot worth?

What’s your pension pot worth?

If you either have or are thinking of saving into a pension plan you are probably wondering how much retirement income you can expect from your pension pot. So what’s the answer?

Under new pension rules coming in by April 2015 you will be able to take 25% of your pension as a tax free lump sum and as much of the remaining pot as you like as lump sums, but these will be taxed as income. In fact, you will even be able to treat your pension like a bank account, withdrawing adhoc amounts where 25% of it is tax-free while the remainder is taxed at your marginal income tax rate. But one thing I must point out is that when the new pension freedoms come into effect pension schemes are not compelled to provide access to them. In any event, cashing in your pension this way is not tax efficient and you will then need to generate an income from a now smaller pot of money as a result of the taxation. So let’s assume that you want to use your pension pot to produce an income.

How much will my pension be?

Here is a fantastic pension pot calculator* which allows you to enter a few details and will instantly tell you how much income you can expect from your pension pot but also whether you are on track for the retirement you want. Plus it can tell you what the impact will be of increasing your monthly pension contributions. Best of all its absolutely FREE! I used it to find out how much my pension will be.

Once you have done that, there are a few other things to consider…..

Will you want to take a tax free cash sum from your pension savings?

Ordinarily you are entitled to take a tax free cash lump sum, from your pension before taking an income. You can take up to 25% of the total fund value but obviously this will reduce the income you receive when buying an annuity (which is a guaranteed income stream in exchange for a capital lump sum) or taking an income via what is known as income drawdown. There is no hard and fast rule whether it’s more beneficial to take a cash sum or not, it depends on your individual circumstances. The cash sum is tax free whereas any income payments you receive will be taxed.

With a pension pot of £100,000 a maximum tax free cash lump sum of £25,000 can be taken leaving £75,000 to produce an income.

What type of income do you want from your pension pot?

Details of your options under the new pension rules can be found here. Ultimately if you want to use your pension pot to generate an income you can use income drawdown (see later), purchase an annuity or a combination of both. If you are unsure what to do then seek the help of a qualified financial adviser. If you don’t already have a financial adviser you can trust then you can find a reputable one here.

One advantage of income drawdown is that it gives you greater flexibility over your retirement income and also allows you to keep your pension pot invested so that it can grow, along with your income (although neither is guaranteed). I cover drawdown in more detail later. While annuities are less attractive than they were post the Budget 2014 some people still prefer the security of a guaranteed income stream.

When purchasing an annuity there are a number of different options regarding conditions attached to the payments. For instance payments could be guaranteed for a number of years, increase over time or be payable to a spouse following your demise.

The following examples give you an idea of how these conditions would affect your payments.

  • A person aged 65 could currently receive an annual annuity income of £3,400 from £100,000 purchase price, which would increase by the Retail Price Index and be guaranteed for 5 years. The annual income from this annuity is £2,400 less than a level annuity.

What age can I retire?

The age at which you want to start receiving an income makes a massive difference to the amount of income you will receive.

  • A male aged 65 could currently receive an annual annuity income of around £5,800 (gross) from a £100,000 purchase price. This income would increase to around £6,800 if aged 70 at time of purchase. These examples are based on a single life, level income with no guarantee.

But for a more personal estimate of potential annuity income this annuity comparison tool is useful.

Do you currently have any health issues?

If you smoke, suffer from ill health or currently take any prescribed medication then you may be able to increase your retirement income by purchasing an enhanced or impaired life annuity. The level of annuity income will depend on your individual circumstances. Interestingly Hargreaves Lansdown has launched an enhanced annuity calculator* which, although not covering every insurer, will give you an indication of the potential uplift in retirement income.

If you want an annuity then decide how you want your income paid?

How you want your income paid can affect, marginally, the income you receive. If you choose to receive your first payment immediately on purchase of your annuity then your income will be slightly lower than if your first payment was 6 or 12 months later.

What annuity provider should I choose?

The amount of your annuity income will differ depending on the annuity provider you choose. Even amongst the top ‘best buy’ providers there can be a difference of hundreds of pounds each year in the amount of income they will provide. So shop around using the aforementioned annuity calculator.

Is there an alternative to buying an annuity on retirement?

Yes, you could leave your pension pot invested and still receive an income using what is known as income drawdown, this would provide an income now and leave the decision on purchasing an annuity until later. This could be a possible approach for someone moving to part-time employment and who just needs a top-up income rather than annuitising their entire pension pot.

There is a drawback, however, as your pension pot remains invested and therefore could go down in value. If your investment underperforms then you would  be left with a much smaller pension pot when/if you eventually want to purchase an annuity or draw further lump sums from your pension pot. For a number of reasons, primarily costs, income drawdown is not considered a viable option for those with pension investments under £100,000 although this is droping.

So how much income can you draw from income drawdown? Under what is known as capped drawdown there are a number of rules surrounding the level of income that can be drawn which include a maximum amount as well as regular reviews. The calculations of the maximum income are complex but here is a handy drawdown calculator which does the job for you. But to give you a guide a man of 65 can draw a maximum of £8,700 a year initially, subject to ongoing review, from a £100,000 drawdown pension pot (assuming all that £100,000 is being used for income generation).

But there is another option known as flexible drawdown. Under flexible drawdown you can withdraw as little or as much income from your pension fund, as you choose, as and when you need it. At the moment flexible drawdown is only available to those with £12,000 secure pension income already. However, come April 2015 this entry level rule is being removed and capped and flexible income drawdown will be be replaced by flexible access drawdown to simplify things.

Conclusion

Hopefully, the above has given an idea of the level of income a £100,000 pension pot can provide. However, you need to be aware that annuity rates are always changing, therefore the above figures should only be used as a guide. Also, I strongly recommend seeking the advice of an independent financial adviser.

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Latest inflation figures determine 2015/16 ISA allowance, basic state pension & benefit levelshttp://moneytothemasses.com/news/latest-inflation-figures-determine-2015-isa-allowance-basic-state-pension-benefit-levels?utm_source=rss&utm_medium=rss&utm_campaign=latest-inflation-figures-determine-2015-isa-allowance-basic-state-pension-benefit-levels http://moneytothemasses.com/news/latest-inflation-figures-determine-2015-isa-allowance-basic-state-pension-benefit-levels#comments Tue, 14 Oct 2014 09:40:27 +0000 http://moneytothemasses.com/?p=17102 2015/16 ISA allowanceThis morning the Office of National Statistics (ONS) announced the UK inflation figures for September 2014. Now while most people may only pay a passing interest in the monthly inflation announcements, September’s figures actually impact on many people’s lives.

What were September 2014 inflation figures?

Annual inflation in September as measured by the Consumer Prices Index (CPI) fell to at 1.2%. The Retail Prices Index (RPI) measure fell to 2.3% from 2.4% in August.

So why are September’s inflation figures important?

A host of social benefits and tax breaks are increased in line with inflation, as measured by September’s figures. The actual increase to benefits takes affect at the start of the next tax year. But inflation is expected to increase again in the coming months which won’t be reflected in benefit increases if inflation remains above its current rate come April 2015. The table below summarises the annual increases to key benefits and allowances:

Type of benefitAnnual increase due in April 2015*
Jobseeker’s Allowance and other income-related benefitsUsually increased in line Consumer Prices Index (CPI) in September: i.e. 1.2%
Disability Living Allowance, Carer’s Allowance and other non income-related benefitsUsually increased in line Consumer Prices Index (CPI) in September: i.e. 1.2%
State pensionUnder the terms of Triple Guarantee the basic state pension is likely to increase by 2.5%. This means an increase from the current £113.10 a week for single pensioners to approximately £115.95*
Tax creditsUsually increased in line Consumer Prices Index (CPI) in September: i.e. 1.2%
Stocks and Shares ISA allowanceIt has not been confirmed whether 2015/16 ISA allowance will definitely increase by Consumer Prices Index (CPI) in September 2014, i.e by 1.2%, given the recent large increase in the annual ISA allowance. Assuming that it does that means a possible increase from the current ISA allowance of £15,000 to a 2015/16 ISA allowance of £15,180. Here is a roundup of the Best Cash ISA rates available now.

* these figures are due to be confirmed in the Autumn Statement on 3rd December 2014.

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