IT is remarkable how rapidly the years seem to roll by. There’s no doubt that time flies by even quicker when you are having fun. And they say that it seems to pass even faster still with age!
Our rock stars are living examples of this seemingly rapid passage of time. One minute they are in the vanguard of cutting-edge youth culture, the next they appear in front of us on reunion tours, older and greyer like the rest of us, but still helping us wistfully remember those halcyon, distant days of youth.
How quickly it flies by. I remember Bruce Springsteen first coming to my attention with Born to Run in 1975 and 33 years later, in early 2008 I finally got to see him live with my 18- and 15-year-old sons at Old Trafford. Fifty-eight years old at the time and still showing the vitality of a 25-year-old as he blew our socks off over nearly three hours.
Remarkably, the rock generation of the 1950s and 60s are today’s pensioners. The idols of the 70s are also seriously thinking about their retirement plans. Before they know it, the present generation of pop stars will be considering the same. And in truth, the current crop should be thinking about retirement planning now.
Savings culture needed
Retirement planning involves saving, and it is very important that a savings culture is invested in people from a young age. And yet research shows that there are large numbers of young people in the UK who are simply not planning for their financial futures.
On average, Britons expect to retire by the time they are 62 and can now expect to live for a good 20 years in retirement, and yet 24% of adults in the UK have made no pension provision at all.*
To be able to live well in retirement for 20 years involves a lot of money, especially taking into account inflation. The key is to invest when young, and parents and grandparents can help foster a savings culture among young people at an early age. As Sir Winston Churchill once said: “Saving is a very fine thing, especially when your parents have done it for you.”
By doing so, young people will see the benefit of regular saving and the provision of valuable nest eggs for the future. The key is to start investing as much as you can afford as soon as possible so that money has plenty of time to grow, whether on a regular savings basis or lump sum.
This principle applies to retirement planning. For workers in their 20s and 30s, retirement can seem a long way off, but with people living longer, the reality is that they need to start funding their retirement as early as possible to avoid a late pension panic.
Tax-efficient wrapper
Pensions are essentially a tax-efficient wrapper to help save for retirement – and the changes to legislation in the last couple of years have made the pension system much simpler and more flexible for everyone.
People can now invest as much as they earn into a pension plan and receive tax relief on their contribution, provided this does not exceed £235,000. A lifetime allowance of £1.65 million caps the size of a fund on which individuals can claim tax benefits.
Contributions are fully relievable against the highest marginal rate of income tax, and all growth in the pension fund is largely free of all UK income and capital gains taxes. Furthermore, 25% of the fund can be taken as a tax-free lump sum at any time after the age of 50 (or 55 when this becomes the minimum retirement age in 2010).
Another change is that people can take benefits from the age of 55 without ceasing employment, which increases the number of options available to people. You no longer have to purchase an annuity, you can take the tax-free cash and decide not to take an income from your pension, and you do not even need to purchase an annuity when you reach the age of 75.
Greater flexibility
This increased all-round flexibility in the system gives people a real chance to start funding a good pension. But as we have seen, the years rapidly roll by, and the rock and roll generation is finding out that the prospects of greater longevity could mean a greater risk of outliving savings, which as well as being daunting underlines the importance of taking financial planning seriously as early as possible.
The golden rule is to find out exactly how much is needed in retirement, and start planning for it now. With increased longevity, retirement can now last longer than the time we spent working. It is, therefore, essential to accumulate more while we are working in order to meet the extra costs of living longer.
The overwhelming majority of people do not have the time or knowledge to understand the most taxefficient ways to fund this most important stage in our lives, which is why it is vital to seek the best professional advice from a wealth manager.
Then you can sit back, put your feet up and watch the years roll by.
■ For further information or to discuss any aspect of financial planning, contact the author, Gordon Nicoll, a founder member of The Ellis McComb Partnership, 3 Mortimer Street, Birkenhead, Wirral, CH41 5EU; telephone 0151 650 6520, e-mail ellis.mccomb@sjpp.co.uk, website www.sjpp.co.uk/ellismccomb.
* Finance Daily report (www.financedaily.co.uk), News Corporation.
