Monday, 25 May 2015

Gifting the Inheritance Away

I have two adult sons who have both done fairly well for themselves but have followed very different paths.

The eldest has lived in rented accommodation in London since graduating. At first he lived with a succession of house mates and then a long-term girlfriend but he is now on his own which is very expensive but at 31 he feels he needs his own place. He has a job that pays him well enough to live in London and has paid off his student loan but he has never saved beyond a few hundred for his next holiday. Recently he has become very disillusioned with his career (a para-legal job in the health services). His salary is barely creeping up, promotion prospects are poor and his pension is being down graded quite drastically. Basically he is bored, burned out and bordering on unhappy.

My youngest son has not yet ventured out of full time education after moving from a degree to an MA and then a PhD which he is just finishing. He has done some teaching work along the way but has mainly been funded via scholarships and bursaries which he has won due to hard work and excellent academic results. He actively enjoys living frugally which has helped. His friendship group is large and very supportive and he's very happy where he is.

Both my sons have a potentially life-shortening genetic illness. I mention this because it does make a difference to the decision-making process that my husband and I have just gone through. We have decided
to give/gift/pay out around half of our ISA savings to our sons now, when they need it, rather than continue to save it in case we have a "rainy day" (whatever form that might take).

As we aren't even proper "pensioners" yet we haven't really thought much about inheritance. We don't expect to end up paying any inheritance tax given that a surviving married partner also inherits their partner's unused allowance so this means that the total estate would need to be over £650,000 before any is due? Someone please correct me if this is wrong.

But in any case the timing of inheritance is something over which you have no control and doesn't fit in with anyone's plans. Why would we want to sit on cash "in case" when there is currently a valuable use for it. Waiting till we die to pass the money on to our sons makes less sense the more I think about it. We have around £70,000 in our ISAs which only form part of our retirement plan in that it would be used to provide a small amount of income (maybe about £3,000 a year) and be a care-cost buffer if we need it. In actual fact the costs of care are so astronomical that if residential care were to be needed for either of us on a long term basis, whether we had £35,000 or £70,000 would be soon become academic because it would vanish in such a short period of time. This is a scary thought but it does mean that keeping the ISA funds for this purpose doesn't make a whole lot of sense.

So we have decided to manage the money so that our sons can have around £17,500 each over the next couple of years. My eldest son can then leave his job and do a Masters in a subject he will enjoy. The change in him since we talked about this and told him of our decision is remarkable. He's full of enthusiasm and plans for the future, whereas before he seemed to be losing his naturally positive outlook on things. I defy anyone to tell me that this is the wrong thing to do.

I need to do some work on how we can do this and what would be the best way to "gift" it. I also need to bottom out which bits of our ISAs to sell and move into cash, whether to give the money as lump sum(s) or regular payments and investigate implications for taxation. In addition to the money my eldest son will hopefully be living in our studio flat for a year whilst he does the course so I also need to work around the loss of the rent for that period. Back to the spreadsheets.

In the middle of all this I'm expecting to put in my application for VR during the summer which might, or might not be accepted. Interesting times :-)

Monday, 18 May 2015

Having My Hand Forced... Probably a Good Thing?

Virtually as soon as the election result came in the managers in my section issued invitations to 1-1 sessions with all staff above a certain grade and announced the fact that we are to be offered Voluntary Redundancy in the summer to take effect from April 2016.

It has been on the cards for some time . We have been steadily bleeding staff for several years and yet more savings need to be made in order to accommodate the next round of government spending cuts. Given the fact that this government now has an overall majority there is also a strong likelihood of privatisation and/or outsourcing of services.

In order to keep a basic level of service going, front-line staff who deal directly with the public, are being protected as much as possible from the cuts, although there has been a significant drop in numbers here too. This means that those of us who look after the infrastructure are being targeted.

Don't get me wrong, it would probably be a blessing for me personally to be accepted for VR. In the past people over 55 have been given the chance to choose to go as part of "efficiency savings" rather than be made redundant, which means that they have been given access to their pension immediately and without reduction. This would be an absolute godsend to me as I would receive my pension, as accrued up to date (around £8,500 pa) from next April. Happy days :-). However there is some doubt that the same rules will apply this time round as letting people have their pensions early is very expensive when compared to making them redundant.

We are currently waiting to find out what the terms of the offer will be, but in the meantime I am left with a bit of a dilemma. If I am offered the the redundancy pay only and no pension would I accept? My redundancy payment comes in at around £20,000 but taking it would mean that I would not get that final year of work which adds £500 extra to my pension for life. I'm still running the numbers and going back through the calculations I did last Oct, with the added complication that I've now decided to take my LGPS pension early. At the forefront of my mind is the vision of what working in my small section would be like, given that we are due to lose half the senior staff. That level of stress is not attractive at all. I think I'll be able to find the money somehow :-)

Of course I may not get accepted for VR if there are "cheaper" people who would like to go, or if it's considered too much of a risk to lose me. On the other hand I may get sent down the path of compulsory redundancy anyway if not enough people take up the offer. The next few months will tell. I will certainly feel much happier when I know exactly where I stand. The uncertainty doesn't help my financial planning though, specifically around the choice of funding AVC's as against SIPP. Watch this space.

Monday, 11 May 2015

Happiness is a warm "hygge"

In case you haven't come across the word before "hygge" means coziness, friendliness, peace of mind, belonging and social acceptance and it seems to explain, at least partially, why a recent eurostat report found that retired Danish women are the happiest people in Europe.

Eurostat -  Overall Life Satisfaction.
Contributing factors which encourage this state of affairs include the fact that the Danes have the best pension system in the world (as measured by the Melbourne Mercer Global Pension Index) the existence of social support networks, affordable child care facilities, good healthcare and a strong welfare system.

Denmark's pension system comes out with an overall score of 82.4 according to the  Global Pension Index which measures schemes on adequacy, sustainability and integrity according to a points system. The UK is currently in 9th place with a score of 67.2 (2 points up from the previous year due to auto-enrolment and rising contributions.) It will be interesting to see how the new flexibilities introduced this year affect the score. Despite falling out of favour in the UK, annuities are still widely bought in some of the higher ranking countries with 85% of Danes purchasing one, although some countries such as Australia (77.8) also do pretty well on more flexible systems like those being introduced here. In any case, having a secure, regular and guaranteed income must be one of the biggest influences on a general feeling of well-being and go a long way towards explaining the contentment of retired Danes.

In addition to a reliable pension system Danes "may pay some of the highest taxes in the world but they are rewarded with generous public services and a world-renowned welfare state." and "in Denmark grandparents are not faced with a second career as a childminder, unlike in the UK, where 47% of grandparents look after grandchildren and one in four working families rely on grandparents for childcare1."

Being female is also key to the happiness quotient. The authors of the report think this is probably because women tend to make strong and lasting friendships and are more likely to have social interests and hobbies outside the home when they retire.

Another interesting fact revealed in the report is that the poorest 20% of Danes are happier than the richest 20% of Greeks which adds some weight to the idea that social stability and a well-functioning welfare system are bigger factors influencing happiness than personal wealth.

On a global scale the World Happiness Report "reviews the state of happiness in the world today and shows how the new science of happiness explains personal and national variations in happiness. It reflects a new worldwide demand for more attention to happiness as a criteria for government policy."

The criteria used to measure the happiness of citizens can be summarised in the following way:

"The happiest countries have in common a large GDP per capita, healthy life expectancy at birth and a lack of corruption in leadership. But also essential were three things over which individual citizens have a bit more control over: A sense of social support, freedom to make life choices and a culture of generosity." 2

An extract from the report's summary of Chapter 8 caught my attention with particular reference to the recent election.

"Well-being depends heavily on the pro-social behaviour of members of the society. Pro-sociality involves individuals making decisions for the common good that may conflict with short-run egoistic incentives.... Societies with a high level of social capital – meaning generalized trust, good governance, and mutual support by individuals within the society – are conducive to pro-social behaviour."

If Mr Cameron is looking to increase the overall well-being of the nation and move us up the chart, rather than down, over the next 5 years, (which surely sums up the job of government?) maybe he should download a copy and study it well.



Saturday, 2 May 2015

April 2015 Update

Portfolio update here.

There's been a bit of choppy water this month with a small lurch downwards in the last few days. The outcome is that my portfolio has dropped around 1.5% from where it was in the middle of April. However performance is currently looking like this  - which I'm more than happy with.

of total
As ISA16£50,917.2922.37-0.40%12.80%17.00%
Js ISA6£19,028.828.36-0.30%7.40%16.50%
Sipp Pension7£34,525.2615.170.60%7.60%10.90%

We haven't added much to our investments this month due to the fact that I "borrowed" from our cash reserves in the Santander account in order to boost my Sipp at the end of March and we have also spent £4,000 on a new "to us" car from the same account. My priority at the moment is therefore to rebuild our cash. This will continue next month, although I have got my eye on the Big60Million Investment Bonds which are paying 6% and look very interesting. The closure date for applications is the 27th May so I need to get my skates on if I'm going to take the plunge.

You may have noticed that I have moved the target on my Sipp tracker on the right down from £50,000 to £35,000. This is because I have decided to take my LGPS defined benefit pension at 60/61 rather than hang on till 65. So, I am virtually at target with both ISA's and SIPP. From that point of view the job is done. The only piece of the picture that is missing is the increase in my pension I gain by going to work every day. I need to work for two more years in order to add another £1,000 onto my annual pension. Because the LGPS is now a "career average" pension we earn 1/49th of our salary in pension each year so I am adding around £530 for every extra year that I work. It feels very generous (and I'm sure it is compared to how much someone would have to put into a DC pension in order to generate this amount especially as it is index linked).

I have been thinking about all this in relation to a comment ermine made on my last post about time having a "different sort of cost" and how it's a struggle to balance things up. Breaking the calculation down shows me that for every month I continue to work I am being paid, not just my salary, but £45 extra per year for every year I live after retirement. It doesn't sound a lot, and maybe it isn't. Some days it doesn't feel like it is worth it and I start to think about rerunning the figures and going earlier, especially as I am currently suffering quite badly with a trapped nerve in my neck which (according to my physio)  is due to sitting at a desk using a PC for far too many years. The physical pain of sitting at my desk is wearing me down at the moment, and that is even before I have to sit and see first hand what the next round of spending cuts will do to the service I help to provide. A prospect which wasn't made any easier by reading Paul Krugman on The Austerity Delusion.

But for the moment it's business as usual and the end of March 2017 remains the date I am heading for, I can't deny that the temptation to cut and run sooner is definitely there though :-)