Archive | Retirement

RSS feed for this section

UK Pension Transfers

UK Pension Transfers

Immigrants from the UK and New Zealand residents who have worked in the UK usually find themselves leaving behind their locked-in pension funds when they arrive in New Zealand. This can present a number of difficulties.

Once you become eligible for payments from your fund, you will need to pay tax on those payments as well as bank transfer fees. You will also be exposed to exchange rate changes so that the amount you receive as a pension will fluctuate over time. If you pass away with your money still in a UK scheme, your spouse is likely to receive a pension worth only half of what you would have received, whereas New Zealand retirement schemes pay the whole benefit to your spouse or dependants. UK pension funds are classed as Foreign Investment Funds by Inland Revenue which means that if you are a New Zealand tax resident you may have to pay tax on the investment gains.

UK pensions can be transferred to New Zealand but can only be transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) without incurring tax. Up to 40% of any money you transfer may go into an unlocked fund and can be withdrawn before retirement age without tax liability if withdrawn more than six years after leaving the UK. By contrast, some UK pensions allow you to take 25% of your funds after the age of 55 without paying tax. Being able to withdraw funds can help with changing circumstances such as marriage, birth of a child or change in employment status.

Having your funds in New Zealand means it is easier to obtain information on how your investment is performing. The transfer is best done with the assistance of a financial adviser to avoid unnecessary penalties and to be aware of your options.

Comments { 0 }

When Retirees Run out of Money

Retirement Blues

One of the biggest financial risks faced by retirees is that they will run out of money before they run out of time.  A pension is only enough for daily living costs and those who have just a small sum saved can run out of money once they have had to replace a car and pay for home maintenance. There are a number of options for retirees who need to supplement their retirement funds.

 First of all, check to ensure all available Government benefits are being received such as accommodation supplements and disability allowances. Check with the local council on eligibility for a rates rebate.

 If a large sum of money is needed, the cheapest option to consider is to borrow from family members. This should be done with the assistance of a solicitor to prevent any problems with gift duty or issues that might arise on death. Unfortunately, children don’t often have money to lend. Borrowing from a bank is a possibility and can usually be done by way of an interest-only loan. While this will help keep repayments small, they still need to made and this can be stressful.

 Selling the family home and buying a cheaper house is another way of getting access to funds. This can be an expensive option once all the costs associated with selling, buying and moving are taken into consideration.

 Home equity release schemes are proving to be very popular as a last resort option. If you need funds for home improvements, such as a new roof or painting, then taking out a loan will enable you to preserve the value of your house. Choosing a home equity release scheme is something that needs to be done with caution and is best done with independent financial and legal advice.

Comments { 0 }

How to Manage your Money in Retirement

Investing in Retirement

One of the biggest challenges in retirement is how to invest your money to provide an income while still protecting yourself against the eroding effects of inflation and income tax. Investing in fixed interest gives certainty of income but returns will be low and unable to keep up with inflation. The alternative, investing in growth assets such as shares and property, will give a better return over the long term but with increased uncertainty in the short term. For that reason, many retirees are afraid of investing in shares. However, there is a way of structuring your portfolio so you can use both income assets and growth assets to advantage. Here is how you do it.

Divide your portfolio into three amounts. The first amount is a lump sum of cash that is the equivalent of 6-12 months worth of income. For example, if you need $1,000 per month to top up your income, set aside $6-12,000 in cash. This amount should be placed in a high interest on-call account.

The second amount of money should be the equivalent of 1-3 years income, so in our example you would set aside $12-$36,000. This should be invested in fixed interest investments which are of good quality.

The third amount to be invested is whatever is remaining after setting aside the first two amounts. These funds should be invested mostly in growth assets with a small amount of fixed interest.

The way this strategy works is that over a three or more year time period the gain from your growth portfolio can be cashed up and put into your income portfolio to keep both portfolios constant. The interest from your income portfolio can be put into your on-call account to keep it topped up, along with proceeds from investment maturities as required.

Comments { 0 }