Lack of advice on divorce It is a sad truth that almost half of all marriages today end in divorce. A significant proportion of these involve older couples, with around one in three divorces now occurring among the over-50s. Those in this age group typically have more valuable assets, likely to be property, savings or pensions, when compared to younger divorcees. This can add complexity when it comes to reaching a financial settlement, but despite this, only 8% of couples in this age group seek financial advice when separating. TAKE SPECIALIST ADVICE While most couples obtain legal advice on divorce, this does not necessarily cover specialist areas such as valuing pensions — a factor that may explain why 29% of people over 50 waive all rights to a spouse’s pension in a divorce. At this stage, there is less time to rebuild wealth before retirement, making it critical to seek expert financial guidance before starting a new life alone. Credit:oneinchpunch/Shutterstock.com 7 RETIREMENT Annuities lock in peace of mind If you want a guaranteed retirement income, there is only one tried and tested option. PLANNING en years ago, when George Osborne made a surprise announcement introducing pension flexibility, the demise of the pension annuity was widely predicted. Annuity sales duly fell by over 40% between 2014 and 2015. Annuity rates also declined sharply: the top rate for a 65-year-old was a less than enticing 4.7% by August 2016. Yet figures recently released by the Association of British Insurers show annuity sales last year were above their 2014 level and double their 2020 low point. There are several reasons for the annuity revival: ■ Long-term interest rates, which underpin annuities, have risen in the past few years. That 2016 rate for a 65-year-old is now around 7.5% (8.0% for smokers). ■ Some people who took advantage of the flexibilities when they started taking their retirement income now want more security. The complex mathematics of annuities means that the older the individual, the harder it is for pension flexibility options to match the guaranteed income an annuity can offer. At age 75 an annuity can provide an income for life of over 9.5%. ■ Last autumn’s Budget has called into question the benefit of using pension flexibility to build up an inheritance for your family. The current proposals, due to take effect from April 2027, will mean inheritance tax (IHT) is payable on any fund remaining at death unless it passes to a surviving spouse or civil partner. In addition, as now, income tax is chargeable on any benefits if death occurs after age 75. In theory the combined tax rate could be an effective 67%. In practice in some circumstances the rate can be even higher. ■ The looming tax change on death benefits has increased the attraction of an alternative way of estate planning with pensions. This involves maximising your retirement income and regularly giving away any surplus to your needs. Under current rules, such regular gifts out of income are exempt from IHT, with no cash limits, subject to meeting HMRC rules. TAILORED OPTIONS The rates quoted above are for a single life annuity with level payments, but you can choose joint annuities and build in fixed or inflation-linked increases. The annuity market is a competitive one, with rates changing rapidly. That, and the fact that once an annuity is in place, it’s virtually impossible to change, means advice is vital. ✣ The value of your investment can go down as well as up and you may not get back the full amount you invested. T Credit: Song_about_summer/Shutterstock.com Credit:Vitalii Vodolazskyi /Shutterstock.com
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