So recent news that 20% of Brits retiring this year will be below the poverty line (set I understand at some £8,254 per year) and that 14% had no pension at all, absolutely got my attention.

When did we go from having one the best retirement provisions of any Western European nation to the mess we appear to be in today?

Personally I attribute that decline to constant political interference in the UK pension system.

In the desire to simplify and protect, politicians have simply made it more complicated and less likely that people will be motivated to save for retirement.

I guess we need to consider how much is enough in retirement? The answer is a big “it depends”.

It depends on whether you want enough to be able to afford accommodation, food, clothing and heating. It could be argued that pretty much everything else is discretionary spend.

But no one, surely, would want a huge chunk of their life to be spent not doing some of the things they want to do.

So making sure you have the finances available for the retirement lifestyle you want is surely vitally important?

I can’t honestly believe that if you sat down with a young person today and asked them about their long-term ambitions any of them would put on their list “When I retire I would like just about enough retirement income to be below the poverty line”. It simply wouldn’t happen.

More likely they would agree with the statement “I don’t want to be poor” but are they motivated enough to ensure that will never happen?

It appears that 20% of the people retiring this year did not have that motivation.

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This is when I am sat face to face with a client and a spark flickers across their eyes as something they have previously been struggling with becomes clear.

This happened to me recently with a client who through hard work and regular savings had created for himself a substantial pension pot.

He had taken the decision to self-invest his pension fund, gathering information and guidance from various sources and building an investment portfolio.

But as he himself freely admitted, he didn’t really understand much about the investments he had, or whether they were  really suitable in his portfolio. So we worked together to understand his goals and objectives.

We spent time understanding how different investment assets class types worked.

We dug down to examine his appetite for risk and volatility and then constructed a nicely diverse portfolio of investment funds.

The really good thing was that he didn’t need to buy any new financial products as his self directed pension plan was perfectly suitable, it was the ‘engine room’ that needed attention.

I liked his email to me commenting that “now he understood what he was doing”; a light bulb moment for him and a good deal of job satisfaction for me.

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To be an Approved Person, an IFA needs to meet a number of criteria.

They must be properly qualified. The minimum qualification standard for an investment adviser became QCF Level 4 on 31st December 2012, which is equivalent to the first year of an undergraduate degree.

The individual must also be competent to give investment advice. This competence is measured in a number of different ways.

The individual has to hold a valid Statement of Professional Standing (SPS) from an accredited professional body.

This SPS is renewed annually and demonstrates that the adviser has carried out the relevant amount of continuing professional development, as well as signing up to a code of ethics.

Competence is also managed by the authorised and regulated firm, which must have in place a training and competence plan. The firm must sign off the individual adviser as competent and then monitor their competence.

All Approved Persons have to be ‘fit and proper’.

This is a regulatory requirement designed to ensure the individual is honest, has integrity and is financially sound; all of the qualities you would expect from someone giving you investment advice.

If this process of becoming and maintaining status as an Approved Person sounds quite onerous, that is because it is!

It is challenging to become an Approved Person and also challenging to retain this valuable status, particularly when moving to a new firm.

Whilst some IFA firms can seamlessly manage the transition of an Approved Person from one firm to another, others seem to struggle with this process and leave their advisers ‘inactive’ for many weeks or even months.

The FCA applies a high degree of scrutiny to individuals who are moving firms and have a history of recommending esoteric or high risk investments to cautious investors.

We encourage all investors to periodically check their IFA is an ‘active’ Approved Person by visiting the Financial Services Register.

If they are no longer ‘active’, they are not legally permitted to deliver any regulated advice.

Long periods of inactivity on the Financial Services Register might also prompt you to find out why your IFA has lost this status and been unable to quickly become an Approved Person with their new firm.

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It’s not particularly pleasant to think about this question or its answer, but it is very important.

According to some new research by Legal & General, it costs an average of £31,627 to replace a Mum and £23,971 to replace a Dad.

That’s an annual cost by the way.

So should the worst happen, your Financial Plan needs to be able to cope with generating that level of income each and every year.

A lot of that cost is the result of childcare, which all parents will recognise is an expensive and time consuming activity.

It costs an average of £165 a week to raise a child, adding up to £154,440 over 18 years.

According to the Legal & General survey, Mums carry out an average of £277 a week of childcare with Dads carrying out an average of £218.

The actual cost of replacing you as a Mum or Dad will of course vary from these averages.

Spending some time working with a Financial Planner to determine the financial resources you need in place should you die is an important exercise, particularly if you have dependent children.

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Is the Credit Crunch now a distant memory?.

While we celebrate the positive returns the FTSE 100 and other global stock markets have experienced since the dark days of 2008/09, we also constantly remind clients that it is not possible to time the markets, that they can go down as well as up.

Equity investors can benefit from taking on the risk of owning part of a company in two ways; growth in the price of the shares of the companies they part own and also the payment of dividends from the companies, which vary from company to company depending on the strategy of the company and decisions made by the board.

As an investor you can choose to receive the dividend as an income or you can elect to have the proceeds used to purchase more shares in the company.

The same is true if you invest in a basket of shares via a pooled investment such as a Unit Trust or Investment Trust.

If you have chosen to receive the income, have you questioned why you are doing this?

If you don’t need the income simply electing to have the payment re-invested could make you much richer.

What is particularly interesting about the performance of the FTSE is what investors don’t always appreciate.

Research by BGC Partners, a firm of investment brokers, shows that when the payment of dividends from the companies that make up the FTSE 100 are added back in the index would actually be at 9,200 not the 6,800 it is at the time for writing.

Perennial research from the pension provider Scottish Widows also evidences this; £100 invested in 1950 in the Barclays Equity Price Index (a proxy for UK equities) would have been worth £8,584 in 2012 if the dividends were received and spent but a staggering £127,235 if dividends had been re-invested.

Of course, in reality, it is unlikely that anyone would have invested for this long but the point is that if you don’t need the dividend income re-investing could make you much wealthier.

On the other hand, as one client said to me this morning, it pays for his scuba diving holiday!

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A new study by Prudential has found that one in five people retiring in 2013 face this bleak financial outlook.

They also found that nearly a quarter of women retiring this year will rely entirely on the basic state pension as a source of income in later life.

One in seven people retiring in 2013 will have only the basic state pension as a source of retirement income.

This is currently a maximum income of £110.15 a week. Could you live on such a low income in retirement?

Even those who have made a small private pension provision face a life in retirement below the poverty line.

Prudential found that 18% of people retiring in 2013 are due to have an income of £8,254 a year, which is estimated by the Joseph Rowntree Foundation as below the poverty line for a single pensioner in the UK.

With rising living costs, making sufficient provision for an income in retirement is essential if you are to continue to enjoy a reasonable standard of living in later life.

Planning is crucial; the more time you give yourself to build sources of income for retirement, the better.

Reaching retirement with little or no income other than the basic state pension is a recipe for a financially challenging experience.

Pensions are of course not the only solution, with those who reach retirement in the best financial condition often drawing from a variety of income sources and investment assets to support their lifestyle.

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She is a very patient person (shouldn’t I be the patient?!) and diligently works her way around my teeth doing whatever it is that Dental Hygienists do, scraping and polishing.

I always feel good when I come away from my appointment and promise myself to keep up the brushing and flossing routine so that on my next visits less effort is needed on her part.

Is that the way you feel when you come away from an appointment with your Financial Planner? If not shouldn’t it be?

Your financial goals and objectives have been given the once over, hopefully with little scraping and more polishing, but you come away with a good feeling that you are on track to achieve your financial objectives.

Some research by CWC Research in association with FundsNetwork published recently suggests that most people don’t want to meet with their Financial Planner as often as we think they might.

Only 3% of people who use a Financial Planner would want to meet monthly, 5% quarterly, 25% half-yearly and 39% yearly.

25% of people would only want to meet their Financial Planner ‘when necessary’.

A further 3% would never want to meet and would do everything remotely.

We typically meet with our clients once or twice a year and that frequency supported by regular contact through our weekly email newsletter, monthly Investment Outlook and quarterly Investment Report seems to offer the best mix of face to face  meetings and remote contact.

We do of course encourage our clients to keep their financial plans as clean as their teeth because that will prevent more significant remedial work later on.

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If they do fix, for how long should they fix – one, three or five years?

The economics behind the numbers are usually quite simple; fix for longer and benefit from a higher rate of interest.

Taking a look at the most competitive rates available to UK savers from mainstream banks and building societies today, we see that instant access is paying 1.70% (including a 1.19% bonus for twelve months).

A one year fixed rate bond is paying slightly more interest, at 2.00%. Two years will get you 2.30% and three years will pay 2.45%.

All of these interest rates are of course subject to income tax. Once tax and inflation is taken into account, savers are likely to experience a real terms loss in the value of their capital, regardless of whether they opt for easy access or fixed rates.

If you are prepared to fix your savings interest rate for longer than three years, a five year bond is offering 3.00%.

I was recently quoted in the Mail on Sunday saying it would be madness to lock up your savings for five years or longer. With interest rates currently so low, there is a real chance they will go up during a five year fixed period, leaving savers with a less than competitive deal.

Our view is that most savers can benefit from fixing for a year, possibly two.

Before tying up your cash savings for this long, you might consider holding some money back as an emergency fund with easy access.

Savers also need to consider the tax implications of their savings strategies today more than ever before, in order to maximise returns.

Making use of your cash ISA allowance means your interest on cash savings within the ISA is free of income tax.

You can get 2.25% tax-free interest from the most competitive easy access cash ISA right now, beating the net interest from a three year fixed savings account for basic and higher rate taxpayers.

Fixing your cash ISA for a year only gives you 2.20%, making the easy access route more attractive. Two years gets you 2.55%, which might be worth considering if you believe interest rates are destined to stay low for at least the next couple of years.

The markets indicate interest rates will stay low until at least 2016.

With the latest Monetary Policy Committee minutes out this morning showing that Bank governor Sir Mervyn King voted again for an additional £25bn of quantitative easing, we expect interest rates to stay low for at least that long.

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Developed by Warwick University, the calculator aims to create a more realistic estimate of our own household inflation figures than the official Government measures of CPI and RPI (which includes mortgage and property related costs).

Official figures out today showed a fall in RPI from 3.3% to 2.9% and CPI from 2.8% to 2.4% compared to last month.

This is a positive for the Bank of England and their continual battle in hitting their CPI target of 2% but as we often tell our clients, official figures don’t always match personal expenditure experiences.

With this in mind I thought I would find out what the BBC and Warwick University thought my personal inflation rate would be based on my family and financial position.

Coming out at 2.9% means it is actually pretty consistent with the RPI figures (and I do still have a mortgage) but the comparison with Homer Simpson seemed pretty random.

On closer inspection they do accept that assigning financial details to a cartoon family is arbitrary and subjective but to provide a headline it is a bit of fun.

The criteria used to assess household inflation did produce confusing results however.

I live with my wife who also works, we have no children and we left full time education nearly twelve years ago but the description of the results suggests I have higher than average education costs?

Unless you keep a detailed log of you expenditure and compare it on a month by month basis it will be very hard to get an accurate picture of inflation. But how important is it?

As Chartered Financial Planners we assist our clients in determining whether they can afford to live the lifestyles they want, for the rest of their lives, without the risk of running out of money.

Analysis such as this requires planning for the long term – at least thirty years if your retire at age 60 – and therefore inflation is going to have a significant effect on the cost of your lifestyle.

To forecast this we have clients complete an expenditure questionnaire which itemises life’s different costs and how they think they will change in retirement.

We can’t predict what price inflation will be in thirty years time but we can make assumptions and we feel a long term rate of 3 – 3.5%% pa is prudent given the Bank of England target.

By applying an inflation figure to your long term finances, you can determine whether you are saving and investing enough and whether your pension pot is going to be large enough to sufficiently replace your earned income in retirement.

If it looks like you are not going to be able to live the lifestyle you wish it is better to make the necessary adjustments well before retirement when you have time to benefit from compound interest.

So whether or not your lifestyle is like Homer Simpson’s, if you would like to understand how inflation may affect your retirement please do get in touch.

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An immediate care annuity provides a regular, tax-free income to pay care fees.

Payments are made directly to your registered care provider and continue for the rest of your life.

You buy an immediate care annuity with a lump sum payment and the cost is based on your medical history and life expectancy, so full medical underwriting needs to take place to understand the cost.

The new long-term care annuity from Just Retirement will bring the total number of providers in this important market to three, alongside Friends Life and Partnership.

Just Retirement chief executive Rodney Cook said:

“I am pleased to announce Just Retirement will be entering the long term care market during the next few months, initially with an immediate needs annuity solution. Further details will be published before the launch date.”

Greater levels of competition are important in this marketplace to ensure that those at the point of entering care receive the best possible deal.

Three providers offering immediate care annuity products highlights the importance of using a specialist care fees adviser to shop around on your behalf and secure the most competitive deal.

Even with only two providers active in the market, we often find a big difference between the prices quoted from each after full medical underwriting has taken place.

With an increasingly ageing population and greater certainty over future legislation around capping care costs, we expect to see more insurers enter this important market in the near future.

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