Are you a member of the ‘baby boomer’ generation, typically born between 1946 and 1964? If you are then you may already have good pension provision from a defined benefit (final salary scheme) and with a bit of luck and some good planning you may be well placed for a comfortable retirement. Defined benefits, which provide a secure income based on salary and length of service, were introduced in the 1950s. By 1980, over 90% of pension savings were going into a defined benefits arrangement but the increasing longevity of the pension recipients coupled with poor investment returns made these arrangements too costly for employers, and they are now rarely seen in the private sector. P eople entering the workforce today (often referred to as millennials) can expect to work until at least their late sixties At just three weeks old, Elizabeth has now become Scrutton Bland’s youngest client and is potentially one of the youngest holders of a personal pension in the UK! To some this may seem a little extreme, but it is an Under current legislation, Elizabeth will not receive any state pension until she is age 68 at the earliest, so the flexible pension that Terry and Teresa have started for her could mean the difference between being able to retire, or having to work until her late sixties or possibly later!
before they will be able to draw their state pension. The recent introduction of auto enrolment employers pensions schemes and the Lifetime ISA were designed to encourage people to save for their retirement, but a recent BBC report highlighted that a 25-year-old today would need to put away at least £246 net of tax every month in order to get an eventual pension of £20,000 a year. Newly retired firefighter Terry Page and his wife Teresa from Dovercourt were both members of their respective employers’ defined benefits schemes and are now enjoying an active retirement. Recognising that the years ahead may be more financially challenging for their grandchildren than have been for them, Terry and Teresa wanted to do something a bit different for young Reuben, Katelyn and their newest grandchild, Elizabeth, who was born on January 7th 2017. Terry explained: ‘The idea of starting a pension plan for a child wasn’t something that had occurred to us when deciding how and when to leave a sum of money for our grandchildren. Michelle (our financial adviser) suggested the option of a flexible pension and we were immediately interested. It gives each of our grandchildren a good start to their pension pot and hopefully will give them more of a secure retirement, even though that is many years away.’
exceptionally efficient way to help save for their future, and an altruistic gift that will make a real difference to Elizabeth, Reuben and Katelyn in years to come. How they helped their grandchildren Terry and Teresa have together made a contribution of £2,880 to a flexible pension for each of their three grandchildren. The government will add a further £720 to each pension via tax relief at source, boosting each contribution to £3,600. For baby Elizabeth, if the £3,600 grows at a compound interest rate of 5% per annum, net of charges, she will have a pension pot of £8,663.82 when she reaches 18 years of age, which will give her a significant start to her retirement pot. If she retires at age 65, the same pot could be worth £85,823.64. If Elizabeth moved the funds into flexible income drawdown, drawing down the investment growth only, and assuming it grew at the same rate, this could boost Elizabeth’s monthly income by £357 per month. Note that these figures do not take into account the impact of inflation, which may erode the purchasing power of the funds.
Baby boomers and millennials and our youngest ever client! Michelle Groves, Independent Financial Adviser at Scrutton Bland has recently helped set up a flexible pension for a new client. Nothing very unusual in that - except that the pension holder was three weeks old!
Scrutton Bland’s independent financial advisers provide information and advice from across the whole of the financial market, and can guide you through the minefield of pension providers to find the best options for your individual circumstances. Contact Michelle Groves on
01206 838400 or michelle.groves@ scruttonbland.co.uk
Reuben, Katelyn and baby Elizabeth: Scrutton Bland’s youngest pension holders!
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