Lennox

 

Pensions: A Beginner’s Guide

If you watch the news or read a digital or print newspaper – which we imagine applies to nearly everybody – you’ve probably read that there’s a pensions crisis brewing, and one which will have severe implications for the United Kingdom and the United States of America. If you’ve grown up and spent your life in the United Kingdom, you’ve probably always expected that the state will care for you during your retirement years. Such talk is therefore quite alarming.

Because of this, we thought it would be a good idea to put together a basic guide on where we stand with pensions, and which types of pension are available. We’ll also discuss what action you might want to consider taking to ensure that you’re adequately looked after in years to come.

We’ll start with the type of pension that almost every British citizen is entitled to expect; the state pension.

What Is The State Pension?

The state pension is a financial provision that the United Kingdom makes for every single one of its citizens, with the intention of supporting them in retirement. Every qualifying citizen automatically becomes eligible to receive the state pension when they reach their retirement age, which at the time of writing is 65 got both men and women. For a single individual, the current rate of the state pension is £168.60 for each individual claimant. Should that not be sufficient for people to survive, a state second pension is also available to some claimants, and is means-tested to maximize the level of benefit awarded to those most in need.

Does Everybody Receive The State Pension?

Almost everybody. In order to qualify for the full state pension, you must have paid 35 years worth of National Insurance contributions during your working life. You’ll still receive a partial payment so long as you’ve paid in at least ten years worth of National Insurance contributions. This is sometimes an issue for self-employed persons who haven’t maintained their tax obligations.

What If The Investments Don’t Go Well?

With this type of scheme, it’s possible that the amount of money you’ll receive will be less than the total sum you’ve paid in during your working life. That may not seem fair, but investments are a gamble. Just like not every spin of the reels on a mobile slots game will result in a win, not every fund you invest in will generate a profit. Stock traders, like mobile slots players, are betting and speculating on the outcome of their actions. A stock trader will tell you that they have more control of the outcome of their bets than someone playing Vegas Slots, but the reality is they’re just powerless to stop things going wrong when they back a loser.

Understandably, that type of scheme isn’t for everybody. That’s why there’s another form of workplace pension available.

That Doesn’t Sound Like Enough Money

It isn’t. It’s an open secret that the state pension is woefully inadequate for its intended purpose, and will likely have to be topped up with additional benefits for most claimants in order for them to avoid collapsing into poverty (hence the coming pensions crisis). It might get worse, too – the eligibility age for the state pension is due to increase to 67 in the mid-2020s, and 68 in the mid-2030s. Young people currently at university may find themselves working into their 70s before they become eligible to receive the pension – presuming it still exists by then.

Clearly, the state pension alone isn’t sufficient to support us in retirement, so what else is out there for us? One additional provision is the Government’s workplace pension initiative. Since 2017, every employer in the county has been required to make contributions into a workplace pension for their employees – unless the employee has specifically opted out of the scheme. What benefits do we get from that?

What Is A Workplace Pension?

It’s a pension plan which is usually contributed to by both you and your employer together. Unlike the state pension, the funds become available at the age of 55 – although you’re free to carry on working and adding to your pension pot if you wish to do so. The more you pay in, the more valuable it will ultimately become. Workplace pensions are set up one of two ways.

Defined Contribution Pension Plans

Under the terms of a defined pension contribution plan, the money paid into your pension scheme by yourself and your employer is invested. Provided the investment scheme goes well, this will increase the level of funding available to you when you eventually choose to draw down on the retirement plan after reaching the age of 55 or later.

Defined Benefit Pension Plans

Under the terms of a defined benefit pension plan, you receive a promise from your employer that you’ll receive a specific income when you choose to retire. That income will be based on how many years you spend working for that employer, and the level of your income when you stop working for them. You don’t stand to receive as much money as you would from a defined contribution pension plan if everything went well, but you also aren’t subject to the risks which come from underperforming funds. When you reach 55, just as in the other scheme, you’ll have three options.

What Are The Three Options?

Unlike your state pension, you have some freedom of choice when it comes to your workplace pension. You could choose to take it all as a cash lump sum at the age of 55 if you so desired, although you’d have to be conscious that you’ll receive no more money from it for the rest of your life. You could treat it like a savings account and dip into it as and when you wish to. Option three would be to treat it like a regular pension, and receive a monthly income from it for the rest of your life.

Will The State Pension And The Workplace Pension Together Be Enough?

We don’t know. Nobody knows what the state of national or personal finances will look like twenty or thirty years from now. That’s why it always makes sense to speak to a professional pensions adviser if you have concerns about your financial future when you reach retirement age.

What Might A Pensions Adviser Direct Me To Look At?

Personal pensions. These are pension schemes which are nothing to do with the Government; they’re set up by you (under the guidance of your adviser), and maintained by you (with your adviser’s assistance). Your financial adviser will assess your current income and expenditure, determine how much money you’d require to maintain your current quality of life in retirement, and address any potential shortfalls. From there, they will make a recommendation as to how much, if anything, you should consider paying into a personal pension.

What Options Might They Have For Me?

Too many for us to discuss here, and their range of products may vary depending on who they’re affiliated with! As a general rule, a fully qualified pensions adviser should be able to provide advice on a range of different pension products, ranging from those suited to people with a large risk tolerance to those who want to play as safely as possible.

This article doesn’t constitute financial advice, but the information you’d get from a qualified pensions adviser does – so go and see one!

 

Finding yourself in debt can be a very frightening experience, particularly if you are not completely financially literate. Not being able to afford the pleasantries and luxuries of life is one thing, and we all feel this stress more keenly at Christmas time. However, not being able to purchase basic necessities, like food and clothing, or not being able to keep up with rent payments is not only scary but can also be detrimental to your health, both physical and mental,

The worst thing you can do if you find yourself in debt is to panic. If you have no family or friends that you can approach to help or offer advice, it’s all too easy to jump out of the frying pan into the fire. By this, we mean doing something silly like borrowing money from loan sharks.

Loan sharks are thriving in South Africa

According to a recent report on Businesstech, there are many more loan sharks in existence than was previously thought to be the case. It is estimated that there are approximately 40,000 of these operations in business now all across South Africa.

Mashonisas, as these loan sharks are nationally known across South Africa, are illegal and unregulated. They don’t follow the rules and regulation issued by the National Credit Act, and this is where the danger lies. You can find yourself subjected to enormous pressure if you cannot make repayments in time, and in some cases, this pressure can turn into physical violence.

Part of the social fabric

Despite that popular conception that loan sharks are all violent crooks, some of them are not. They are in actual fact an established and accepted part of the South African social structure. This is because it is far easier to get loans from these illegal sources that it is from regulated sources such as Banks and NCR approved finance houses.

But nonetheless, these illegal sharks are dubious people who should be avoided where possible. They charge high interest rates, use unsavoury tactics such as taking people’s ID cards and bank cards as security on otherwise unsecured loans, and they can remove borrower’s assets if payments are late or not forthcoming.

They use weapons such as intimidation and shaming people, and occasionally they resort to physical violence. The problem though is that they do fill a niche, providing easy to obtain loans.

Using family and friends to help

Using family and friends if you have them to help when you are in financial difficulty should be prioritised over going to Mashonisas. But you do need to tread carefully. If you are not able to afford to repay any money you could be offered, it can destroy relationships if it hasn’t been agreed on beforehand. If the shoe is on the other foot and you are approached by a friend or relative for financial help you need to be aware of the options that are open to you.

The best thing you can do when you are in debt is to try and solve the problem yourself without involving people you know personally. Getting debt counselling is a good place to start – especially if you are not financially literate. Leave borrowing from friends and relatives as a last option and try to avoid contacting loan sharks completely.