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Savings rates are so low as to be virtually non-existent unless you want to tie your money up for years. Dividends have been reduced and the basic pension is not enough to live on. So how can we stretch out our income? Well, there are a number of things that we should look at: |
Are you claiming all you are entitled to?
According to Help the Aged, one third of pensioners are not claiming Pension Credit. This is a tax rebate for those with low savings. To find the relevant information about this and other benefits, go to the government website at www.direct.gov.uk. And click on “Pensions and Retirement Planning” for all the details.
Don’t forget your winter fuel allowance. If you’re over 60 and living in the UK, you're entitled to claim it. If you’re over 80 the amount you can claim increases significantly. Everyone is entitled to this non-taxable payment and it won’t affect any other benefits that you might be claiming.
Have you insulated your home?
Talking about fuel costs, did you know that insulating your home can save you up to 60% on your heating bills? If you’re on benefits you can get a grant for heating improvements and insulation from Warm Front (www.warmfront.co.uk). You can also get a grant for free loft and cavity insulation if you’re over 70.
Information about energy savings grants and other benefits can be found at www.homeheathelpline.org.uk. Check it out.
Switch Utility Providers.
You can easily save over £200 on your fuel bills by changing your energy provider and getting the best package for your circumstances. You can also save hundreds on your internet connection and phone bills by shopping around.
Annuities.
While we’re on about shopping around, did you know that your personal pension provider should tell you about the open market option if you want to convert your pension into income? A lot of them will conveniently forget to mention it and only 40% of people shop around for the best annuity rates. An annuity is a product that you can buy and which provides you with an income for the rest of your life. You
don’t have to accept the annuity offered by your pension provider – you are entitled to shop around. There’s a massive difference between the best and the worst rates and you could be better off by as much as £1,400 a year for every £100,000 in your pension pot.
Savings Rates.
There’s a huge difference in rates between the various deposit providers and the chances are that you’re not getting the best deal because you have remained loyal to your bank or building society for years. However, don’t be seduced by offers that tie up your savings for years. Interest have to go up sooner or later and if you lock up your savings for more than two years you could lose out on the better rates to come and you will be penalised if you break a longer term deposit.
Deposit takers often run short-term promotions and, just like sales in the shops, you can benefit from ‘special offers’. Even if you don’t take them up, just mentioning a competitive deal to your bank may result in them offering you an improved rate or their own current promotion.
Don’t forget the Post Office. They often offer a good fixed-rate on one year bonds.
Corporate bonds might also be worth looking at, although they can be a bit more risky. This is where you effectively lend money to a company by buying a bond that they have issued. Speak to your Financial Advisor (IFA) about this option.
If income is your main priority you might also consider buying a series of National Savings Certificates that mature in sequential years. This will protect your capital from inflation and give you a tax-free income. Another question for your IFA.
Equity Release.
If you don’t actually want to sell your home and move into a smaller one, you might consider an equity release scheme. There is an excellent feature article in the Retirement Revenue Features section called ‘Downsizing Your Housing’ that goes into more detail. Essentially Equity Release involves selling a percentage of your home in exchange for an income or a lump sum that you can invest.
Again, you must discuss this option with an IFA and you should also talk to your family about it, because they might be able to come up with an alternative suggestion.
This isn’t for everyone and is probably best considered as a last resort, but it’s worth thinking about if you’re stuck for capital or an income.
Tax Allowances.
One final thought, if you’re fortunate enough to have an investment portfolio, is that you might find it more tax efficient to sell some of your shares or property each year. Everyone has a personal Capital Gains Tax (CGT) allowance that should be taken up each year to the maximum extent possible.
If you are looking to make some extra income by working or by starting a small business, the Retirement Revenue site has a number of great ideas to help you get started. There’s a free eBook available that explains a number of options and a free newsletter that will also give you ideas about generating an income. Well worth investigating, especially if you’re interested in ‘old school’ businesses rather than Internet schemes.