Life expectancy has stopped increasing, according to a report from the Office for National Statistics (ONS) issued in September, but we are still living longer than ever before.
Between 2000 and 2010, average life expectancy at age 65 rose by 2.4 years for men and by 1.8 years for women. However, since 2010 improvements have slowed markedly and the latest figures from the ONS show almost no change from those issued a year ago. On average, a man aged 65 in 2015- 2017 could expect to live for another 18.6 years, while a woman aged 65 could survive for a further 20.9 years.
The important word here is ‘average’. Other calculations by the ONS suggest that a man aged 65 now has a one-in-four chance of living for another 29 years, to 94, while a woman has the same chance of living another 31 years, to 96. There is a 7% chance that a man aged 65 now could survive to 100, and an 11% chance for a woman.
Such long terms are challenging if you are considering how to invest your pension fund to provide an income throughout your retirement.
THE ANNUITY OPTION
For those with a pension fund to invest, taking out an annuity is the only way to guarantee income for however long you live. However, since the introduction of pension flexibility, annuities have fallen out of favour. The latest FCA figures suggest over five times as much money is placed in income drawdown as annuities, despite the investment risks and ongoing management involved in drawdown.
While drawdown does have major benefits in many circumstances, the important role of annuities in providing secure income is in danger of being ignored.
Annuity income can be structured in a variety of ways to incorporate automatic increases – for instance in line with inflation – minimum payment terms and/or continuing until the second death of you and your partner. Importantly, once the framework is chosen, there are normally no future changes. That gives security but makes the initial choice of annuity design all the more important.
If you would like more information on annuities, perhaps to provide a core level of retirement income alongside drawdown, please talk to us. We can supply guidance based on your health and lifestyle circumstances.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Focus on inheritance tax returns
HMRC investigated almost one in four inheritance tax (IHT) returns in 2017/18, according to research published in September by UHY Hacker Young.
HMRC can impose penalties of up to 100% of the tax due on UK estates that underpay. These penalties apply even though it is often a family member who acts as executor after a relative has died. Executors have a legal duty to ensure all information is correct when applying for probate or filing an IHT return.
Particular care should be taken to ensure property values reflect current market conditions, and that assets are not omitted from the return. Not all estates will be liable for IHT. The rules can be complex, so seek advice if necessary.
Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances.
The Financial Conduct Authority does not regulate tax advice.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.