The National Association of Pension Funds (NAPF) published results from a recent survey today, some of which makes for scary reading!

“Around three million people who are not retired are relying on a lottery win to pay for their retirement, and a similar number are counting on an inheritance windfall, a new survey reveals today.

The research by YouGov for NAPF asked people who have not yet retired to list the different ways they are planning on funding their retirement.

Nearly half (49%) said they plan to do so through a workplace or private pension. But a striking 8% – or just over three million people by NAPF estimates – said they are relying on a lottery win to fund their older age, while a similar number (9%) are banking on an inheritance windfall.”

We mentioned previously that the UK pensions gap is growing, and that innovative solutions (like options for early pension release) are needed to address the problem. The NAPF’s survey highlights how urgently new thinking is needed to address the problem of funding the retirement of our aging population.

Google announced last week the launch of their new price comparison website for financial products – Google Advisor. Initially it only works in the US, but as with many of their services, if it is successful we can expect it to be rolled out to the UK in the near future.

At the moment they are focussing on the simpler, high-volume financial products like mortgages, mortgage refinancing, savings and checking accounts (Current Accounts).  More complicated products like pensions are not easy for online comparison websites to feature, as they usually require a personal interaction with a qualified financial advisor. But Google is famous for its online innovation, so watch this space!

In their announcement Google described the benefits of their new site –

“With Google Advisor, you enter information about what you’re looking for in a mortgage, credit card, CD, or checking and savings account. We show you a list of the offers that match your criteria, along with rates and contact information. Google Advisor is designed especially to help you make these difficult financial decisions easily, with:

Speed: As you change your criteria, the results update instantly. You’ll still have a list of all your options in one place, so you can quickly compare different offers.

Trust: By setting your own search criteria, you’re able to see only those offers and rates that apply to you, which means you can compare applicable offers without even contacting a provider first.

Control: You only need to provide the minimum amount of information we need to show you offers that are right for you. You have full control over what you want to share, and which providers you choose to talk to—and you don’t have to submit any personal information until you’ve decided you’re ready to move forward.”

Will UK online comparison sites like CompareTheMarket be affected? We will have to wait and see, “Simples!”

It is fairly well known that in the UK, as in many western countries, our ageing population (the baby-boomers are getting older) will lead to problems with how the country can support the increased proportion of pensioners in the future – the “Pensions Gap”.

Lots of people are suggesting solutions, some more radical than others. For example, in a recent report for the CII (Chartered Insurance Institute) titled “An age-old problem: developing solutions for funding retirement”, Ros Altmann suggests that pensions need an image makeover –

“The word ‘pension’ often has negative connotations nowadays. It conjures up the image of being old, which many people resist…we should abolish the word ‘pension’ for anything other than what the state pays people in their old age.”

As one solution she suggests that the Government could create a £1 million monthly lottery for people who put aside money every month to save for their retirement.

Commenting on this suggestion, Ed Bowsher at Lovemoney.com has some other ideas. One option is to allow people to release pension funds at an earlier age. To “Unlock the Box” as he puts it –

“When you save into a pension, you can’t get access to your money until you’re 55 at the earliest. That’s a good thing in some ways as it means you can’t fritter your pension away on an expensive holiday when you’re 40. The ‘lock box’ forces you to be prudent with your retirement savings.

Trouble is, I suspect the lock box puts lots of people off from saving for their retirement at all.

I think we need to allow savers to access their pension pots at a younger age. Or at least a portion of their pots anyway.”

It will be interesting to watch what other ideas for reform start to surface, as the ticking of the “Pensions Time-Bomb” gets louder!

When your pension matures, you have the option to release a lump sum in cash from your pension, up to 25% tax-free. While this may seem like great news at first glance, there are pros and cons to consider when deciding whether to take this lump sum straight away. Pension advisors Hargreave Lansdown have a good article, entitled “Tax-Free Cash: Should you take it?”

In the article they discuss some of the less-than-obvious reasons why you may want to pause for thought before deciding to release your cash lump-sum :-

“When you come to draw on your pension you can take up to 25% of its value as a tax-free cash lump sum, instead of converting that portion into a taxable income. Somewhat unsurprisingly, many people do just that, and with good cause. However, there are occasions when taking the tax-free cash might not be the ‘no-brainer’ it appears to be.”

The article also discusses the option of putting your tax-free lump-sum into an ISA, with the potential to generate better returns with the money :-

“Almost half of people saved some of their tax-free lump sum into an ISA according to a survey we conducted last year. The reason for doing so is clear: the lump sum may be tax-free but unless you move it into a tax shelter like an ISA, any further income or gains you obtain are potentially subject to tax. The ISA allowance is now £10,680 per person, so a couple can put in a joint total of £21,360 this tax year. Over a few tax years you can see how a significant portion if not all of your lump sum could be squirreled away into ISAs and out of the clutches of the taxman. You can then use the ISA either to supplement your income or leave it to grow to draw on at a later date. Taking your lump sum and saving it in this way also gives you greater scope to adapt to changing spending needs; you may not need a capital sum at the point of retirement, but in the future you might.”

As always, think carefully and consult professional advice if appropriate, before deciding whether to release the money from your pension.